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PerkinElmer: The Market Completely Missed The Transformation

May 07, 2020 4:32 PM ETRevvity, Inc. (RVTY)10 Comments
Belgian And Bullish profile picture
Belgian And Bullish


  • Over the last 5 years, PerkinElmer has gone through a substantial make-over, fundamentally changing the profile of PerkinElmer from a 3-4% organic growth business to a 5-6% organic growth business.
  • Free Cash Flow conversion has fallen from historic 90%-100% levels to mid-70%. We are convinced that the new CEO can bring FCF-conversion back to former levels.
  • We believe this is a business that will be able to grow its EPS at a double-digit CAGR for the next 5 years.
  • The latest quarterly earnings support our thesis.

Executive summary

PerkinElmer (NYSE:PKI) is a company that has manufactured analytical, scientific instruments in all of its 80 years of existence. Yet, over the last 5 years the company has gone through a substantial make-over. This puts the business in the enviable position where today no less than 70% of revenue comes from consumables, services and software, no less than 40% of turnover is generated in the emerging markets and no less than 75% of the business is geared towards the highly favorable diagnostics and life sciences end markets.

Our take is that this has fundamentally changed the financial profile of PerkinElmer from a 3-4% organic growth business to a 5-6% organic growth business. This growth is supported by several tailwinds that we explain throughout the article: a shift to gene editing, the rise in autoimmune diseases, expanding the new-born screening assays in emerging markets, new product launches, etc. This makes that the growth is truly high-quality since it is not only significant in terms of quantum, but also highly diversified in terms of drivers.

Complementing this growth with a very clear path of margin expansion, we believe this is a business that will be able to grow its EPS at a double-digit CAGR for the next 5 years. We therefore think PerkinElmer is a buy at current levels for the long-term investor.

Source: Bloomberg; Author's own calculations

Company history

PerkinElmer was founded in 1937 by Richard Perkin and Charles Elmer as an optical design and consulting company. Throughout its history, the company has always manufactured scientific, analytical instruments, yet for a wide range of end-markets: from optical components for the Hubble Space Telescope to photonics, fluid sciences and clinical labs all the way to computer manufacturing. Today, the company's end-markets are confined to diagnostics, life sciences, food and environmental.

This article was written by

Belgian And Bullish profile picture
Belgium based investment analyst covering a wide spectrum of global stocks. Prior to this position, I have worked in both corporate finance and consultancy for several years. I focus on companies that benefit from secular growth trends and that have a long runway in EPS growth.

Analyst’s Disclosure: I am/we are long PKI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

Mr. Due Diligence profile picture
Great article, thank you
NAMAKAN profile picture
I'm looking at PKI because they bought Horizon Discovery which gave them exclusive rights from Rutgers to a Prime gene editor.
It's a single cut editor very similar to the one licensed by BEAM. It may or may not be better. But it likely will edit better than Cas-9 and be used on many more diseases.
BEAM has a market cap of 6 billion. They will not be profitable for many years.

PKI is profitable now. They have many assets. Cash flow etc.
Are they doing anything with the base editor?
If they are, will the market reflect the value of this powerful technology in PKI share price? ....I don't think it's built in.
They have all the tools to help their subsidiary, Horizon Discovery do great things....But I've heard nothing since January of last year.
bluescorpion0 profile picture
@NAMAKAN their license is for research purposes not human diseases!
NAMAKAN profile picture
@scorpion.nort Interesting. What will they use it for? That will be hard to monetize.
bluescorpion0 profile picture
@NAMAKAN i guess research for now. I think it can be lucrative. Look at $TECH. They do mostly research only, just added to sp500.
Guraaf profile picture
Thanks for the article. I have been watch $TMO and $DHR for sometime for starting a position and will add this stock as well.
nsm0002 profile picture
Nice write-up. It is rare to see such thoroughness in company background and research on here these days.

I agree with most of what you said, and that PKI does seem to have a decent organic growth runway ahead of it in some nice areas. Also agree that the industrial portion of DAS could (should) be sold off in the not too distant future.

One thing that concerns me though is the debt the company has as well as their underfunded pension obligations. The company says it's net-debt/EBIDTA ratio is about 2.7x now (not including pension obligations), and I would like to see that come down.

There will likely be some great opportunities to expand the Dx business soon, so the company should keep some liquidity on-hand for M&A. I do not think they have the ability to do any meaningful M&A in the current position though, but I am staying long while they figure things out. Also helps that I was able to start a position in the mid-60's.
Belgian And Bullish profile picture
nsm0002, thank you for reading the article and commenting.
I agree that the company is not in the position to do any meaningfull M&A at the moment. I don't think meaningfull M&A should be on the agenda regardless of whatever leverage ratio the company may currently have. I think it is important that the new CEO starts by integrating recent acquisitions and by streamlining existing operations.

If our thesis is right and the company can significantly raise cash conversion then PKI should see its balance sheet deleverage back to its historical 1.5x EBITDA level relatively fast.
nsm0002 profile picture
I certainly hope your thesis is correct then. M&A should be on the agenda in a few years as organic growth will begin to slow back to the 3-4% range.
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