IBO Laboratory Index Bears Slide

Similar to a year ago, US equity markets contracted sharply in the first month of 2015. The Dow Jones Industrial Average, S&P 500 and NASDAQ fell 3.7%, 3.1% and 2.1% in January, respectively. While the markets recovered in 2014, equity prices in 2015 may face greater resistance, perhaps marking the end to the long equity bull market due to the global slowdown and currency headwinds. In addition, US economic-growth valuations remain uncertain as durable-goods orders and GDP growth missed expectations. Following a strong third quarter in 2014 of 5.0% growth, fourth quarter 2014 US GDP was 60 basis points below expectations at 2.6%. For 2014, US GDP grew 2.4% compared with 2.2% in 2013.

IBO has made several changes to its Indexes starting with this issue to better provide a benchmark of the equity-market performance of the analytical- and life science laboratory-instrument and -product industry. Following revised criteria (see page 11), IBO has created the Laboratory Instruments and Products Stock Index and made several changes to the Diversified Laboratory Stock Index. Both Indexes have been reset with performances backdated to January 2012. Merck KGaA was added to the list of European companies due to its proposed acquisition of Sigma-Aldrich (see IBO 9/30/14).

Laboratory Instruments and Products Stock Index

The Index was flat for the month to close at 222.39, despite a majority of companies trading lower. Enzo Biochem recorded the largest decline, falling 29.1%, while Fluidigm jumped 14.2% due to better-than-expected preliminary quarterly revenues. On January 14, the company preannounced that fourth quarter 2014 sales grew 59.8% to $33.4 million, including the DVS Sciences acquisition (see IBO 1/31/14).

Several other companies in the Index—Illumina, PerkinElmer, Thermo Fisher Scientific and Waters­—also exceeded analysts’ quarterly expectations. Average fourth quarter 2014 adjusted EPS for the four companies climbed 23%. Illumina continued to shine, as the company exceeded EPS expectations for the 13th consecutive quarter. On January 27, the company reported that fourth quarter and full-year 2014 adjusted EPS grew 93% and 52% to $0.87 and $2.74, respectively. The company projected 2015 EPS to grow 15% to $3.12–$3.18, which may be conservative considering a projected higher gross margin of roughly 130 basis points and new product introductions (see page 1). Shares advanced 5.8% for the month.

Waters reported on January 28 that fourth quarter 2014 adjusted EPS grew 17% to $1.99 due to strong demand from pharmaceutical customers. Full-year 2014 adjusted EPS improved 9% to $5.48. Shares climbed 5.6% for the month. The following day, PerkinElmer reported that fourth quarter 2014 adjusted EPS grew 15% to $0.85, led by newborn-screening demand and lower operating expenses. Full-year 2014 adjusted EPS climbed 18% to $2.47. Despite projected currency headwinds of 6%, 2015 adjusted EPS are expected to grow 5%–7% to $2.58–$2.64. Shares improved 4.5% for the month.

On January 29, Thermo posted fourth quarter and full-year 2014 adjusted EPS growth of 39% and 28% to $1.99 and $6.96, respectively, as a result of the Life Technologies acquisition (see IBO 4/15/13) and margin improvements. However, the company projected 2015 adjusted EPS to grow 4%–6% to $7.22–$7.40, which was below analysts’ expectation due to currency. Shares traded marginally lower for the month. The strong valuation of the US dollar is projected to have a significant effect on earnings this year. For the same four companies above, average adjusted 2015 EPS is estimated to grow 7%–8%, compared with 23% for 2014.

Similar to Fluidigm, NanoString Technologies and Affymetrix provided strong preliminary top-line fourth quarter 2014 growth results. On January 8, NanoString announced that fourth quarter 2014 revenue is expected to grow 50%–53% to $47–$48 million, which was toward the higher end of its forecast. On January 12, Affymetrix announced slightly better-than-expected fourth quarter 2014 sales of $93 million. Affymetrix advanced 11.9% for the month, while NanoString contracted 9.8%.

QIAGEN also declined for the month, sliding 2.3%. The company missed both fourth quarter 2014 adjusted EPS and revenue expectations on January 28 due to weak US HPV sales and currency. Adjusted fourth quarter 2014 EPS fell 24% to $0.25, and full-year 2014 EPS slipped 2% to $1.00. For 2015, the company estimated first quarter and full-year adjusted EPS to grow 2% and 17% to $0.22–$0.23 and $1.16–$1.18, respectively. On January 11, the company announced plans to repurchase its outstanding convertible notes due 2024 for roughly $235 million to avoid potential share dilution.

In other news, Mettler-Toledo confirmed on January 15 that it has hedged a majority of its risk exposure from the Swiss franc against the euro in 2015 and 2016 through forward contracts.

There were several ratings changes this month. Becton, Dickinson was upgraded by Raymond James from “Market Perform” to “Strong Buy” on January 5, by Bank of America from “Neutral” to Buy” on January 6, and by Cowen and Company from “Market Perform” to “Outperform” on January 21. Barclays upgraded QIAGEN on January 7 from “Equal Weight” to “Overweight.” On January 20, Cowen upgraded Fluidigm from “Market Perform” to “Outperform” and raised its priced target 25% to $40 per share. Conversely, on January 21, Robert W. Baird downgraded Affymetrix from “Outperform” to “Neutral.”

Diversified Laboratory Stock Index

Despite better-than-expected fourth quarter 2014 adjusted EPS results from AMETEK, Corning, Honeywell, Illinois Tool Works (ITW), Roper Industries and Teledyne Technologies, the Index declined 2.3% in January to 179.66.

On January 23, Honeywell reaffirmed its 2015 EPS guidance of $5.95–$6.15 for growth of 9%. On January 26, Roper projected 2015 adjusted EPS to grow 6% to $6.70–$6.94. ITW confirmed its 2015 EPS guidance of $5.15–$5.35 on January 27 for growth of 12%. On January 28, AMETEK estimated 2015 EPS will grow 7%–9% to $2.58–$2.63, which was at the lower range of analysts’ consensus. On January 29, Teledyne outlined 2015 GAAP EPS of $5.71–$5.76, in line with expectations.

Danaher met fourth quarter 2014 earnings expectations on January 27 but lowered its 2015 adjusted EPS guidance by $0.05 to $4.30–$4.40 as a result of currency.

The lone Index company to advance for the month was Corning, which improved 3.7%. The company was upgraded by JPMorgan Chase on January 15 from “Neutral” to “Overweight.”


Except for the China’s Shanghai Composite, which slipped 0.8%, all other Asia Pacific equity indexes advanced in January. India’s Sensex recorded the strongest growth, rising 6.1% for the month. Japan’s Nikkei 225 grew 1.3%. Nonetheless, monthly prices for the Pacific Rim companies in the IBO Stock Table were mostly lower. Techcomp recorded the largest decline, falling 12.5%.

Hitachi High-Technologies defied the negative trend to end the month up 5.6%. On January 27, the company reported that fiscal third quarter EPS ending December 31 grew 19% to ¥42.12 ($0.36). The company raised its fiscal year EPS guidance by 3% to ¥191.95 ($1.63) for growth of 46%.

European equity markets expanded in January with the exception of Switzerland’s SMI, which slumped 6.7% due to its monetary-policy change. Germany’s DAX soared 9.1% thanks to the European Central Bank’s new stimulus program. The UK’s FTSE 100 improved 2.8%.

Despite positive market momentum, several UK-based companies in the IBO Stock Table fell sharply due to disappointing financial results. Oxford Instruments recorded the sharpest decline for the month, falling 41.6%. On January 22, the firm provided a gloomy investment update for the fiscal third quarter ending December 31 as a result of trade restrictions with Russia and weak demand in Japan. The company now expects adjusted EBIT to fall roughly 26% to £35 million ($56 million) for the fiscal year ending March 31. Oxford also announced restructuring activities, including potential facility closures and headcount reductions. On January 29, Investec downgraded the company from “Buy” to “Hold” and lowered its price target by 36% to GBX 815 ($12.23).

Scientific Digital Imaging also contracted sharply for the month, sliding 28.0%. On January 15, the company reported that EPS for the six months ending October 31, 2014 widened by 148% to GBX 82 ($0.01) due to weak sales at its Synoptics business within the Americas. The company also announced plans to raise £513,500 (roughly $800,000) through the placement of 4.5 million shares at 10 pence per share to help finance general business operations and potential acquisitions. Abcam, which fell 7.7% for the month, was negatively impacted by currency. However, the company stated on January 21 that half-year sales ending December 31, 2014, grew 7.7%, driven by demand in China. Abcam was downgraded from “Hold” to “Sell” by Canaccord Genuity on January 21.

In contrast, on January 19, Horizon Discovery projected full-year 2014 revenue to grow more than 77% to roughly £12 million ($19 million), which was 7% ahead of consensus, due to acquisitions and strong demand from pharmaceutical and biopharmaceutical customers. Shares climbed 10.9% for the month.

Prices for other European companies in the Stock Table were mostly positive in January. Sartorius recorded the highest return, rising 17.3% for the month as the company recorded better-than-projected full-year 2014 results. On January 27, the company preannounced that 2014 adjusted EPS grew 14% to €4.31 ($5.22) and projected 2015 EBITDA margin to improve 150 basis points to 21.5% of sales.

Exiqon climbed 14.3% for the month. On January 30, the company reported strong fourth quarter 2014 revenue growth of 20% to DKK 34.4 million ($6.1 million). Full-year 2014 EPS loss narrowed 72% to DKK 0.08 ($0.01). The company projected 2015 sales to grow 17% at the midpoint of its outlook range.

In other ratings news, Merck KGaA was upgraded by Credit Suisse from “Neutral” to “Outperform” on January 9, and by Barclays from “Underweight” to “Equal Weight” on January 16.

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