PerkinElmer (PKI)'s stock is down about 10% on Friday after missing consensus expectations for its 1Q earnings on both the top and bottom line, and lowering its full year outcome for 2013 due to weaker demand. Given PKI's strong track record (this is its first miss vs. Street in several years, at least ... and it is a perennial beat and raise story), the stock is getting pummeled by both those who are in for the momentum on earnings, and by those who simply know that management is good on expectations. So what's the best play here?
I would advocate loading up. Here's why:
- PKI's valuation relative to peers is still attractive. PKI offers one of the highest durable organic growth profiles in the Life Science Tools Space. With '13 EPS at $2-2.10 and the stock at ~$30, we're looking at a ~15x P/E, which is below the 16x group average when looking at the diversified peer set, including Waters (WAT), Danaher (DHR), Thermo Fisher (TMO), Agilent (A), Illumina (ILMN), Mettler Toledo (MTD) and others.
- PKI repeatedly stressed that its new forecast was overly conservative. So while the stock may take a "puke" today, it's likely to come back even stronger next quarter as the company beats and raises. Relative to other peers who miss (ala WAT), the miss was highly concentrated in the 15% of its business with industrial exposure, and in Japan. Other businesses such as MTD and WAT have seen this industrial weakness, but for PKI it was more accentuated and occurred at the end of the quarter.
- LT shareholders: PKI has accumulated many funds who are long term shareholders and who do not "churn" the stock due to management's strong track record of execution. Expect these guys to support the stock on any dips, particularly even today, as the stock is well above where it was trading in the thin after hours
- Management's "pitch"- management presents well and will likely get on the road soon to calm nerves and offer comfort towards its sustained 18+% operating margin in '14 and LT earnings power.
In short, I believe PKI will bounce back in the next month or two to the mid $30s even on a flat tape as investors reset expectations and get comfortable with a sustainable baseline, which would still value the company at a nice discount relative to its organic growth profile, margin expansion and end market growth outlook.