Tuesday, February 5, 2013

LIFE 4Q FY2012 Earnings


Life Technologies (LIFE) released earnings yesterday after market close, which were in line with analysts’ estimates and the stock has risen about 1.5% in trading today. Fourth quarter revenue came in about  at 999 million, while EPS came in at $1.11 per share, increasing 6% year over year. Life Technologies has now delivered revenues and EPS growth for 13 consecutive years, while still fighting uncertainty in NIH budgeting and a weak Euro. Operating margins expanded to 29.2% in the fourth quarter, and $662 million in free cash flow allowed them to reinvest into the company and return much of that cash to shareholders by repurchases.

LIFE continued to build out their diagnostics business, increase their presence in China and Singapore,  and see a higher than expected demand for the Ion Torrent genome sequencers. They continued to build a platform to become a important provider of tests and information for physicians around the world by putting together a great management team and teaming up with key companies that has allowed them to launch a lab-developed lung cancer test.  We continue to be positive on their diagnostics business, especially with their Ion Torrent bench top sequencer selling so well, which management sees continuing into 2013.

It should be noted that since inclusion in the portfolio, LIFE has returned about 30%, partly based on recent rumors that buyout firms such as Blackstone, Bain Capital, and KKR are in talks to acquire them. Furthermore, recently it was rumored that Thermofisher is in talks to buy them. This sent their stock up to around $65 per share, where many investors see the potential for a buyout. With earnings that came in around expectations, there is little reason to think that the stock will drop off to past levels in the next few months, unless of course nothing comes to fruition in terms of finding a buyer, which seems unlikely given the rumored demand.

Going forward, management expects revenue growth to be in the range of 3% to 5% for 2013 driven by a continued strength in Ion Torrent sales and their diagnostics business. They have continued to decrease their exposure to government and academia, while their low end of revenue accounts for possible sequestration in NIH budgeting. They expect EPS in 2013 to range from $4.30 to $4.45, and expect a very strong year going forward. Management has always provided great guidance on the company and has continually met expectations despite headwinds from core businesses in Europe and amid uncertain academic and government budgets. They seemed very positive during the conference call and we expect a positive first quarter for them given a slightly more positive macroeconomic background. We continue to watch their performance and any news about their current buyout situation very carefully.

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