The big news in the medical service and device sector is the speculated buyout of Life Technologies Corp. (NASDAQ:LIFE). However, I believe investors could snatch up Agilent Technologies Inc. (NYSE:A) for a “good” price amid the hype surrounding Life.
Agilent provides bio-analytic and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries, meaning it has a bit more of a diversified portfolio, serving not only the life sciences sector, but a number of other fast growing industries.
Only 25% of Agilent’s revenues come from the Life Sciences segment, with the majority (50%) coming from its Electronic Measurement segment, which includes test products, from general purpose instruments to semiconductor and board test solutions, as well as communications test products and services for wireless communications.
The company also has a diversified end market, where its top markets are industrial (21% of revenues), communications (18%) and pharma/biotech (14%).
However, MarketResearch.com is expecting that the “life science tools” market will generate $80 billion by 2016, on the back of innovation and high-end technologies in new applications. Agilent is making strides to become more active in the health care research market, with its acquisition of scientific instruments maker Varian, which is part of management’s strategy of converting the company to a bio-analytical measurement giant.
China is emerging as a major driver for the company, mainly because of its position as a manufacturing destination. Agilent makes test equipment required by manufacturers, which makes China a key market given China has been a prime location for manufacturing operations.
Other notable opportunities in China include the fact that concerns are being raised regarding food safety and testing, which should further boost food safety equipment demand.
Major comps
PerkinElmer, Inc. (NYSE:PKI)’s
two major segments include Human Health (accounting for 49% of sales) and Environmental Health (51%). Human Health includes genetic screening, medical imaging and bio-discovery, while Environmental Health includes analytic sciences, lab services and safety services.
PerkinElmer’s international expansion has helped it grow sales more than 10% the last ten consecutive quarters through the third quarter of 2012, before moderating to 4% growth during the fourth quarter of 2012. Its fall in 4Q 2012 sales growth was due to a high-single digit decline in Europe sales. As a result, PerkinElmer has guided for 2013 sales growth of between 4% and 6% as emerging markets (30% of sales) continue to cancel out European weakness.
Going into 2013 there were 27 hedge funds long the stock, a 7% decline from the previous quarter. Its top hedge fund owners failed to include any top-name billionaire hedge fund managers, with Robert Joseph Caruso’s Select Equity Group having the most valuable position and Chuck Royce of Royce & Associates a close second (check out other hedge funds loving PerkinElmer).
The Wall Street Journal has reported that private equity firms, including Blackstone and the Carlyle Group, plan to put in a bid for Life Technologies Corp. (NASDAQ:LIFE), and the big news was reports claiming that Thermo Fisher Scientific Inc. (NYSE:TMO) had already submitted a bid. Credit Suisse had previously noted that it could take upwards of $75 per share to get the deal done, thus, Life might still be too cheap (see why).
Life’s portfolio includes systems, instruments, software and custom services for making bio-discovery research techniques more effective and efficient for pharmaceutical and biotech. However, there are a number of competitors in its life sciences market. Its recent high-profile launch of the Ion Proton system is also seeing an influx of competition from other players in the DNA sequencing market. Illumina plans to launch its HiSeq 2500 in the fourth quarter of 2012, and Oxford Nanopore Technologies’s MinION (a disposable DNA sequencing device the size of a USB memory stick) is in the queue.
Thermo Fisher has a somewhat more diverse revenue stream than Life, getting revenues from four end markets: Industrial, pharma/biotech, healthcare and government. Yet, the growth in Thermo’ largest segment, laboratory products, which accounts for about 48% of sales, has been slowing. As well, Thermo’s government and academic end-markets (accounting for 24% of revenues) are also facing governmental budget cuts.
Meanwhile, its acquisition of Life Technologies Corp. (NASDAQ:LIFE) is not all “great,” as part of Life’s revenues (10% to 15%) are tied to U.S. government funding. Most notably the National Institute of Health, which is the nation’s medical research agency for improving health and saving lives, which saw its budget cut by 8% at the beginning of the year.
At the end of the fourth quarter there were a total of 32 hedge funds long the stock, a 7% increase from one quarter earlier. Billionaire John Paulson’s Paulson & Co. had the most valuable position in Life of $686 million, comprising 4.2% of its 13F portfolio (check out Paulson’s value picks).
Don’t be fooled
Agilent is in line with major peers, including Life, from a valuation perspective:
| Agilent | PerkinElmer | Thermo Fisher | Life | |
| Forward P/E | 13.5 | 13.4 | 13.2 | 14.3 |
And the stock also has a solid balance sheet, with a debt ratio of 22%, compared to PerkinElmer’s 24%, Thermo Fishers’ 26% and Life Technologies Corp. (NASDAQ:LIFE)’s 28%. However, there could still be value to be found, where analysts expect the company to grow EPS at an annualized 5-year rate of 7.5%. I like the diversity of Agilent’s business model and products, but am also encouraged by its move toward the life sciences industry.
The article Forget About Life, Check out This Stock originally appeared on Fool.com.
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