Life Science Winners and Losers: Life Technologies

A Deutsche Bank analyst on Friday upgraded his opinion on shares of life science instrument makers, saying the low levels of hospital spending seen in the first quarter have slightly improved, and key biopharmaceutical customers are showing positive growth.

Ross Muken upgraded the sector to "Market Weight" after rating it for nearly a year at "Underweight." He named Life Technologies Corp. and Thermo Fisher Scientific Inc. as his top picks in the sector, and upgraded shares of PerkinElmer Inc. to "Hold" from "Sell."

In afternoon trading, PerkinElmer (PKI Quote)shares advanced 70 cents, or 4.4%, to $16.67. Shares of Life Technologies (LIFE Quote) dipped 14 cents to $39.68, and Thermo Fisher (TMO Quote) stock rose 12 cents to $38.25.

Muken said most stocks in the sector have risen about 20% in the last three months, compared with a 7% increase in the broader S&P 500 index, as demand for laboratory instruments and products has picked up. However, he noted that with the economy still in flux, it's unclear how much customers like hospitals and drugmakers are planning to spend this year on research and development tools.

It's also unknown when customers will start turning federal stimulus funds into purchases. On July 1, Illumina said it expects the economic stimulus funding to start helping its results in the fourth quarter of this year -- but warned that its second-quarter results fell below expectations due to customer uncertainty, and its third-quarter sales also might suffer.

Muken says investors will be able to develop a better picture on the industry's overall outlook as customers start their fiscal 2010 budgeting processes, which typically begin during the third quarter. He noted that while industrial markets remain weak and continue to deteriorate, food and beverage testing markets (driven by stronger regulations) and academic markets (driven by stimulus funds) are poised for solid growth.

PerkinElmer closed up 76 cents, at $16.73. Shares of Life Technologies dipped 12 cents to $39.70, and Thermo Fisher stock rose 25 cents to $38.38.