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Here's Why You Should Hold on to PerkinElmer (PKI) Stock Now

Zacks Equity Research

PerkinElmer, Inc. PKI continues to benefit from core Diagnostics unit, robust international growth and continued margin expansion. The company has a market capitalization of approximately $9.77 billion.

The stock currently carries a Zacks Rank #3 (Hold).

Price Performance

Shares of PerkinElmer have gained 12.2%, underperforming the industry’s growth of 17.1% on a year-to-date basis. However, the stock compares favorably with the S&P 500 Index’s 11.5% rally.

What’s Deterring the Stock?

With respect to potential headwinds, in the first quarter of 2019, management at PerkinElmer confirmed that it expects foreign exchange headwind of approximately $18 million in the second quarter of 2019 and $42 million for full year.

Meanwhile, on the tariff side, the company confirmed that it anticipates facing a headwind of $1 million or less in the coming quarters from China.

Growing exposure to international markets increases the risk of foreign exchange volatility that can negatively impact the company’s international sales.

Factors to Boost PerkinElmer

PerkinElmer continues to benefit from strong performance by Diagnostics segment. In the first quarter, revenues improved both on a reported and organic basis, while operating income increased significantly on a year-over-year basis. Per management, the upside can be attributed to strength across reproductive health, applied genomics and immunodiagnostics business.

In the first quarter, in line with management’s expectations, the major geographies witnessed mixed results. High-single and mid-single digit organic revenue growth was witnessed in the United States and Asia Pacific (APAC), respectively. However, this improvement was partially offset by a low-single digit organic revenue decrease in Europe. Nonetheless, organic revenue growth in China came in high-single digits (excluding the impact of lost revenues owing to the U.S. Government shutdown).

Acquisitions and partnerships have been key catalysts for PerkinElmer over the years. In the first quarter, the company announced the buyout of Cisbio Bioassays – a leading custom assay service provider. The addition of Cisbio strengthens PerkinElmer’s position in life sciences and diagnostics markets.

Further, continued expansion in gross and operating margins buoys optimism. It is encouraging to note that management anticipates operating margin in 2019 to expand by 120-150 bps.

Which Way Are Estimates Headed?

For 2019, the Zacks Consensus Estimate for revenues is pegged at $2.92 billion, up 5.1% year over year. For adjusted earnings, the same is pinned at $4.05, up 12.2% year over year.

Key Picks

Some better-ranked stocks from the broader medical space are Cardiovascular Systems, Inc. CSII, Quidel Corporation QDEL and Heamonetics Corporation HAE, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardiovascular Systems has fourth-quarter fiscal 2019 earnings growth rate of 33.3%.

Quidel Corporation has a long-term earnings growth rate of 25%.

Heamonetics has a long-term earnings growth rate 13.5%.

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