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Can Diagnostic Revenues Fuel PerkinElmer's (PKI) Q4 Earnings?

Zacks Equity Research

PerkinElmer, Inc. PKI is expected to release fourth-quarter 2018 results on Jan 31, after market close. The quarterly result should reflect steady growth in the core Diagnostics business. Meanwhile, a raised earnings view for 2018 is encouraging.

Q3 Results at a Glance

PerkinElmer reported third-quarter 2018 adjusted earnings per share of 90 cents, which fell short of the Zacks Consensus Estimate by 2.2%. However, the bottom line grew 23.3% from the year-ago quarter figure.

Revenues in the quarter came in at $674.3 million, missing the Zacks Consensus Estimate by 0.02% but improved 21.7% on a year-over-year basis. Adjusted revenues totaled $674.5 million, which increased 21.6% year over year.

In the trailing four quarters, PerkinElmer delivered average positive earnings surprise of 2.5%.

Which Way Are Estimates Treading?

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share is pegged at $1.16, mirroring 19.6% improvement year over year. The same for revenues stands at $746.2 million, reflecting growth of 16.3% year over year.

Let’s see how things are shaping up before the earnings results.

PerkinElmer, Inc. Price and EPS Surprise


PerkinElmer, Inc. Price and EPS Surprise | PerkinElmer, Inc. Quote

Diagnostics Revenues: A Key Catalyst

We expect PerkinElmer’s Diagnostics segment to be the major growth driver for fourth-quarter 2018 results. Notably, the company’s immunodiagnostics and applied genomics business lines are the key contributors to Diagnostics revenues. Acquisitions of Tulip and Haoyuan should also play a major role. PerkinElmer also provides digital x-ray flat panel detectors and infectious disease testing solutions in its Diagnostics portfolio.

In the last reported quarter, the segment accounted for 38.8% of total revenues, which grew 58.8% on a year-over-year basis.

It is encouraging to note that for the fourth quarter, the Zacks Consensus Estimate for the segment’s revenues is pinned at $290 million, mirroring 50.3% improvement year over year.

Other Factors at Play

Fourth-Quarter Guidance

For the fourth quarter of 2018, management forecasts reported revenues of $745 million, representing 16% year-over-year growth. The guidance assumes approximately 5% core organic revenue growth and $102 million sales from EUROIMMUN.

Earnings is predicted to come in at $1.16, indicating 20% increase on a year-over-year basis. This forecast includes an additional 4-cent headwind from foreign exchange.

DAS — A Key Contributor

PerkinElmer has been consistently experiencing strong customer uptake of both new imaging and analytical instrumentation in the Discovery & Analytical Solutions (DAS) segment. This trend is likely to continue in the to-be-reported quarter as well.

Additionally, the fourth quarter is likely to witness strength in life sciences and applied end markets in DAS. Life sciences strength is likely to be driven by solid performance in the pharma biotech end market. Notably, PerkinElmer’s new in vivo imaging products, launched in late 2017, should also bolster the DAS segment’s performance in the fourth quarter.

For investors’ notice, DAS accounted for 60.2% of revenues in the last reported quarter. Revenues at this segment totaled $406.2 million, reflecting a 5.4% rise from the year-ago quarter. Per management, the segment saw organic growth of 7% in the third quarter.

For the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues stands at $457 million, reflecting a 2% improvement year over year.

What Does Our Model Say?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise. This is precisely the case here.

Earnings ESP: PerkinElmer has an Earnings ESP of +0.77%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PerkinElmer carries a Zacks Rank #3.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks Worth a Look

Here are a few medical stocks worth considering as they also have the right combination of elements to post an earnings beat this quarter.

Intuitive Surgical, Inc. ISRG has an Earnings ESP of +2.63% and a Zacks Rank #2.

Illumina, Inc. ILMN has an Earnings ESP of +1.83% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

DexCom DXCM has an Earnings ESP of +0.90% and a Zacks Rank #2.

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