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Why Is Nobody Talking About PerkinElmer Stock?

By Jim Halley - Jan 5, 2021 at 6:55AM

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PerkinElmer's shares have risen more than 47% in 2020, so why isn't everyone talking about this fast-rising testing company?

Though it has been around for more than 80 years, chances are you've probably never heard of PerkinElmer ( PKI -0.92% ) -- and that's too bad, because the Waltham, Mass., company is having a great year.

PerkinElmer sells high-end laboratory equipment like mass spectrometers and produces tests for diseases, food-borne pathogens, agricultural genomics, and neonatal genetics, among other things. The company's stock returned more than 47% in 2020. For the first three quarters of the year, the company posted $2.4 billion in revenue, nearly 17% ahead of the previous year's corresponding period, and its net income was $347.5 million, an improvement of 113% year-over-year.

The company has two segments, discovery and analytical solutions, which engages in life sciences, industrial, environmental, and food applications, and diagnostics, which focuses on reproductive health, emerging market diagnostics, and applied genomics. There's growth ahead for both groups, but diagnostics may have more room to run based on what happened this year.  Through the first nine months, revenue for its discovery and analytical solutions segment declined 2% year-over-year to $1.2 billion, according to PerkinElmer, but the company reported that its diagnostic segment, which includes its COVID tests and other products, also clocked revenue of $1.2 billion, a rise of 46% over the same period last year.

Two researchers in a laboratory.

Image source: Getty Images

A company that keeps developing

What's driving the company's growth right now is its dry blood spot-based COVID-19 test, which can process up to 5,000 samples a day. Even with two approved vaccines, testing for COVID-19 will likely grow in 2021 as businesses and schools increase testing. Through Dec. 31, there were 250.5 million COVID-19 tests carried out in the United States, according to ourworldindata.com.

PerkinElmer didn't come out with this particular COVID-19 test until July, and didn't get an Emergency Use Authorization (EAU) from the Food and Drug Administration (FDA) for it until Oct. 29. It's the second COVID-19 test that the company has gotten approval for this year. In March, the company got an EAU from the FDA for its Polymerase Chain Reaction Test (RT-PCR) test, a molecular test that diagnoses the SARS-CoV-2 RNA in patients.

What's different about its new dry blood spot-based COVID-19 test is it speed, throughput and accuracy. The dry blood samples are taken with a finger-prick collection device, and are highly sensitive, ranked at the top for sensitivity by FDA among COVID-19 tests.

Not a one-year wonder

The company has certainly been helped by the need for coronavirus testing, but to me, its ability to quickly react to the situation is why it has done better than its peers. PerkinElmer has dramatically improved its earnings before interest, taxes, depreciation and amortization (EBITDA) margins this year, but it also has been steadily building revenue for six consecutive years, and particularly the past three years.

PKI EBITDA Margin (TTM) Chart
Data source: YCharts.

PKI Revenue (Annual) Chart
Data source: YCharts.

Looking beyond COVID testing, it is making inroads by offering businesses speedy and accurate food safety and quality controls for meat, poultry and seafood.

It is also concentrating on helping pharmaceutical companies bring drugs to market sooner. In November, the healthcare company announced its plans to close on the purchase of Horizon Discovery, a cell engineering company, for $383 million in the first quarter of 2021. PerkinElmer said the move allows it to add gene editing and gene modulation tools to its life sciences and applied genomics solutions.

That's a huge area of growth potential for PerkinElmer. The gene-editing market is expected to have a compound annual growth rate of 17% over the next five years, according to one study.

While the company has moved swiftly to respond to the pandemic with 15 COVID-related products released this year, it also came out with 20 non-COVID products. The same molecular diagnostic expertise that helped the company develop its COVID-19 tests will help it expand its portfolio of assays to identify diseases that are difficult to diagnose.

I see a lot of potential for the company in applied genomics. The company sees an opportunity by taking the complexity out of analysis for its customers, helping scientists speed up workflows and by efficiently screening potential drug trial candidates, or by coming up with faster and more accurate screening for safer food and industrial processes. 

I recommend the stock partly because of its improved financials, but also because it is well positioned to benefit from the importance of gene editing in the pharmaceutical industry, focusing on being a solutions-based company that adapts to market problems, rather than one that makes products that seek a market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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