PKI - PerkinElmer Belongs In Your Portfolio Here's Why
PerkinElmer (PKI) is one of the 9 stocks featured in a new special report. Claim your copy now! 9 “MUST OWN” Growth Stocks for 2021.
Successful investments usually have one thing in common; they’ve benefited from long-term, secular trends. These secular trends often define and shape our world. They are even powerful enough to defy the cyclical swings in the economy.
A good example is smartphone adoption, which took off during the Great Recession and in its aftermath, even with the unemployment rate above 7% until 2013.
A current secular trend is our aging population. 50 years ago, the median age was 28.1, and 10% of the population was over the age of 65. Today, the median age is 39, and 16.5% of the country is over 65. And, this trend is not abating anytime soon, as the median age is expected to reach 42, and 20% of the population will be over 65 in 2030.
Given the aging population, it’s not surprising that healthcare spending is rising. In 1970, total healthcare spending was $75 billion which came out to $356 per person. In 2019, total healthcare spending was a staggering $3.8 trillion which comes out to about $11,500 per person. The cost of healthcare has increased due to demand and the ability to target new diseases more effectively through continued innovation especially as needs have changed with people living longer.
Medical devices are one sector that will certainly benefit from these circumstances. Within this group, PerkinElmer Inc. (PKI) is one of the highest-quality companies and has impressive growth rates
PerkinElmer Profile
PKI is a manufacturer, provider, and distributor of medical equipment that is used in all types of settings including diagnostics, life science research, food, environmental and industrial testing. Capabilities include detection, imaging, informatics, and service. The company produces analytical instruments, genetic testing and diagnostic tools, medical imaging components, software, instruments, and consumables for multiple end markets.
However, the company is most known for its high-end lab equipment for genetic and environmental screening. The pandemic negatively impacted demand for all types of medical procedures and equipment as all sorts of non-urgent care were delayed. However, PKI managed to continue growing due to its dry blood spot-based coronavirus test. Currently, the company has 15 products in its pipeline specifically for COVID-19.
The company was started right before World War 2 and did well producing optimal equipment for the military. It continued its optical business, but it also entered the semiconductor business in the 1960s which became a bigger part of its business due to the explosive growth in demand for chips. In the 90s, it started selling high-end lab equipment and has been able to successfully introduce products for new segments.
Growth Story
Some parts of PKI have had a decline in revenue due to the coronavirus but it’s managed to do very well due to its coronavirus testing kit. In Q1 of 2020, PKI had $2.9 billion in revenue; in Q4, it had $3.8 billion in revenue. Equally impressive, its revenue growth has accelerated from 0.5% in Q1 2020 to 68% in Q4.
In 2021 and 2022 as the economy returns to normal, coronavirus testing sales will decline. However, sales of lab equipment will be much higher, as many purchases were likely delayed due to the pandemic. This dynamic is reflected in analysts’ earnings estimates. 2021 estimates are $8.80 per share, rising 91% from $4.6 in Q1. The increase in 2022 estimates has been much more modest. From $5.2 in Q1 to $6.2.
Value Opportunity
So, while PKI shares outperformed in 2020 with a 153% gain, they’ve underperformed so far in 2021, as investors have likely discounted the coronavirus boost to sales. It’s also reflected in the company’s multiples. PKI has a forward price to earnings ratio (P/E) of 19.2, which is unusual for a company with accelerating growth unless the market is expecting slower growth in the future.
The share price of PKI’s stock has recently been declining, along with many other coronavirus-related stocks, which make them attractive from a value perspective. A major difference between PKI and other coronavirus-related stocks is that PKI’s other businesses will experience more growth, while some stocks do not have such an offsetting factor. Wall Street analysts are also bullish on the stock; PKI has an average price target of $164.50, implying a 32% upside.
POWR Ratings
Given that PKI has a high-quality company at an attractive valuation, it’s not surprising that PKI has an overall rating of A in the POWR Ratings service, which equates to a strong buy. This grade is calculated by weighting 118 different factors.
Over the last 20 years, A-rated stocks have generated a compound annual return of 30.7%. So, it makes sense that only an elite group of stocks quality for this grade. The POWR Ratings also assess stocks according to different components and industry conditions.
PKI has a Value grade of A which is consistent with its valuation that is cheaper than the market average. It could be argued that it deserves a higher multiple due to its consistency in compounding earnings and the large moat around its business.
In terms of Growth, it also has an A grade. Stocks with accelerating revenue growth are rare. Analysts expect some dropoff in sales growth in the latter half of 2022, yet for the full year, they see $4.2 billion in sales vs $3.8 billion in 2020.
Click here to access PKI’s POWR ratings for Quality, Momentum, Stability, Industry, and Sentiment.
PKI is ranked #11 of 192 stocks in the Medical - Devices & Equipment industry. There are several other top-rated stocks in the same industry. Click here to access them.
Conclusion
Ultimately, the most attractive part of PKI is that it’s a high-quality company that has a consistent track record of compounding earnings and sales. It also makes products that are high-end with large margins and difficult for new companies to enter the market.
I believe that PKI’s stock underperformance in 2021 is an opportunity to buy shares at a discounted price. Once the market focuses on the business fundamentals, shares are likely to resume rising.
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PKI shares were trading at $124.79 per share on Thursday afternoon, up $4.44 (+3.69%). Year-to-date, PKI has declined -13.00%, versus a 5.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. As a reporter, he covered the bond market, earnings, and economic data, publishing multiple times a day to readers all over the world. Learn more about Jaimini’s background, along with links to his most recent articles.
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