Although it has M&A capacity of $1.5 billion, PerkinElmer (PKI - Get Report) will likely pursue small transactions rather than a large bolt-on deal in the near term, according to Cantor Fitzgerald & Co. analyst Bryan Brokmeier.
Areas in which PerkinElmer might look to make acquisitions include reproductive health, infectious disease screening, biopharma services and food safety, Brokmeier said in an e-mail on Friday.
Waltham, Mass.-based PerkinElmer offers products and services for the diagnostics, food, environmental, industrial, life sciences research and laboratory services markets.
In the near term, Brokmeier thinks it's unlikely that PerkinElmer will pursue a bolt-on acquisition in the $500 million-and-above range as valuation expectations for attractive assets are rich.
A PerkinElmer representative was not immediately available on Friday for comment on the firm's M&A strategy.
In January, the company announced a deal to buy Tulip Diagnostics Private, a Goa, India-based provider of in vitro diagnostic reagents, kits and instruments. Other recent acquisitions include Bioo Scientific, an Austin, Texas-based provider of products for the food and feed safety testing and life science research. PerkinElmer purchased Bioo Scientific for $63.5 million last year.
Large transactions in PerkinElmer's history include the purchase of Hopkinton, Mass.-based imaging and detection products provider Caliper Life Sciences for about $600 million in 2011 and Meriden, Conn.-based drug discovery tools company Packard BioSciencem in a deal valued at about $650 million, including debt, in 2001.
In a research note on Wednesday, Brokmeier downgraded his rating on PerkinElmer's stock to neutral from overweight and maintained his price target of $60. He pointed to factors such as the potential risk from a moderation of newborn screening growth in China, as well as the "uncertain geopolitical environment and an over-reliance on a contribution from new products."
"We may become more positive on the shares if newborn screening penetration of India picks up, new product introductions contribute meaningfully to revenue, or a bolt-on acquisition positions the company for accelerated revenue and EPS growth," he added.
On the M&A front, Brokmeier said that based his conversations with other companies, valuation expectations for attractive assets "are rich and aren't showing signs of subsiding anytime soon."
If PerkinElmer does deploy capital for M&A at industry average multiples of 3x to 4x revenue, Brokmeier estimates that $1.5 billion in M&A could result in additional revenue of $375 million to $500 million, "which at a company-average operating margin would add $0.25-0.40 to EPS."
For full-year 2016, PerkinElmer had adjusted earnings per share from continuing operations of $2.60, up 12% year-over-year. GAAP revenue was up 1%, to $2.12 billion, and adjusted revenue grew 2% from the prior year.
In December, PerkinElmer agreed to sell its medical imaging business to Varian Medical Systems (VAR - Get Report) for $276 million. The divestiture came after PerkinElmer sold its U. S. prenatal screening laboratory services business PerkinElmer Labs/NTD to Eurofins Scientific in April of last year.
Shares of PerkinElmer closed at $ 57.22 on Friday, down .03%. The company has a market capitalization of $6.26 billion.
Editors' pick: Originally published April 28.