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Pall Corporation Stays at Neutral

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On Dec 27, we reiterated our Neutral recommendation on Pall Corporation (PLL) largely due to its modest first quarter performance. We prefer to remain on the sidelines until we see substantial organic growth and improvement in the overall industry environment.

Why a Neutral Recommendation?

On Nov 26, Pall reported first quarter fiscal 2014 pro forma earnings of 70 cents a share, marginally above the Zacks Consensus Estimate of 69 cents. Earnings for the quarter also beat the prior-year quarter's earnings of 68 cents a share by 2.9%. Macroeconomic headwinds during the quarter were fully offset by an improved operational execution and favorable impact from stringent cost-cutting actions.

On Dec 23, Pall signed an agreement to acquire the ATMI LifeSciences to further strengthen its Life Sciences business. This segment is one of the primary contributors to its top-line growth with a 7% year-over-year revenue increase in the last reported quarter. The acquisition supplements and broadens its already-extensive portfolio of advanced solutions for biopharmaceutical customers.

In fiscal 2014, Pall is expected to benefit from recovering economic conditions and its strategic initiatives including increased investments in R&D and innovation. In addition, the company has also taken some cost reduction initiatives with a focus on the Industrial segment to improve its performance. 

In the long run, Pall is also likely to benefit from several secular trends, such as global infrastructure growth, increasing demand for water filtration systems and steady growth in the medical and pharmaceutical markets.

However, the company’s geographically diversified business exposes it significantly to the fluctuations in foreign currencies. In addition, the company is highly exposed to the risks of various external operational hazards including change in political or economic conditions. For the last two quarters, the company’s business is getting affected by the depreciating yen.

Moreover, Pall’s revenues declined year over year in its Industrial segment’s business, thereby providing a limited visibility into the future. Thus, we prefer to remain on the sidelines and maintain our Neutral recommendation on Pall.

Other Stocks to Consider

Pall has a Zacks Rank #3 (Hold). Investors interested in the pollution control industry may consider stocks like Fuel Tech Inc. (FTEK) and Tetra Tech Inc. (TTEK), both carrying a Zacks Rank #1 (Strong Buy), and Donaldson Company, Inc. (DCI), carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on PLL
Read the Full Research Report on TTEK
Read the Full Research Report on FTEK
Read the Full Research Report on DCI

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