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3 Reasons Why Investors Should Retain PerkinElmer (PKI) Stock

Zacks Equity Research

PerkinElmer, Inc. PKI is well poised for growth backed by solid fundamentals across its key business segments. The stock has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average being 2.2%. Notably, the consecutive beats underline the company’s operating efficiency.

However, foreign exchange has been a primary concern.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 29.6% against the industry's rise of 16.2%. The current level also compares favorably with the S&P 500 index’s 10% rise.

3 Contributing Factors

Strong Segmental Performance

Of late, PerkinElmer’s key operating segments viz.Discovery & Analytical Solutions (DAS) and Diagnostics have put up a strong revenue performance.

In the last reported quarter, the DAS segment registered single-digit growth led by impressive performances in the life sciences and applied market verticals. The Diagnostics segment witnessed solid double-digit growth in the last quarter on robust reproductive health and immunodiagnostics sub-segments.

Strong Geographic Performance

All major geographies saw a strong fourth quarter, with double-digit organic revenue growth in the United States.

The company has a solid footprint in the emerging markets as well. In the quarter, emerging markets accounted for 40% of PerkinElmer’s revenues, up from 28% in the year-ago quarter. Revenues from emerging markets rose double digits, with high single-digit growth in Asia.

Strategic Acquisitions

Acquisitions and partnerships have been key catalysts for PerkinElmer over the years. In recent times, PerkinElmer completed the takeover of Italy’s DANI Instruments.

In the fourth quarter of 2018, management announced the acquisition of China-based Spectrum Instruments. With this, the company expects to expand its foothold in the gas-chromatography market.

What’s Acting Against the Stock?

In the fourth quarter of 2018, management at PerkinElmer confirmed that it expects a foreign exchange headwind of approximately $27 million in the first quarter of 2019 and $52 million in the full year.

On the tariff side, PerkinElmer expects to face a headwind of $1 million or less in the coming quarters from China. Precisely, tariffs in the DAS unit are likely to be on the higher end.

Which Way are Estimates Headed?

The Zacks Consensus Estimate for 2019 earnings is pegged at $4.03, reflecting 11.6% year-over-year growth. The same for revenues stands at $2.89 billion, calling for 4% growth.

Bottom Line

Despite currency headwinds, PerkinElmer seems to be well-positioned for growth on strong segmental performance. The company's long-term earnings growth rate of 11.4% also supports this view.

Key Picks

A few better-ranked stocks in the broader medical space are Stryker Corporation SYK, Penumbra, Inc., PEN and Varian Medical Systems, Inc VAR. Notably, each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s long-term earnings growth rate is projected at 10%

Penumbra’s long-term earnings growth rate is estimated at 20.9%.

Varian’s long-term earnings growth rate is projected at 8%.

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