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Biotech / Medical : New Brunswick Scientific Co., Inc. (NBSC)
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From: tom pope4/18/2006 3:54:28 PM
   of 724
 
Merrill:

FSH added to ML focus 1 list
Today FSH has been added to the Merrill Lynch Focus 1 List. Based on a
combination of fundamental strength and an attractive valuation, we consider FSH
to be one of the top picks in our universe of coverage.
Diversification, consumable product base lend visibility.
Our investment thesis for FSH is predicated on its diversity and the consumable
nature of its business. The benefits of diversification have been proven over time,
and we believe such visibility warrants a premium, whereas FSH actually trades
at a discount to most loosely-related comparables. The defensive nature of
FSH’s business may be particularly appealing in the coming year, given some
forecasts for a difficult market environment.
Free cash flow strong and rising.
Free cash flow estimates for FSH have been on the rise in recent periods. As an
indication of quality earnings, FCF is also roughly equal to EPS, and result in a
very attractive free cash flow yield of 7.2% on 2007 estimates.
Valuation compelling on our measures.
Ironically, while EPS and FCF growth at FSH are among the best in our universe
of coverage, the company’s valuation is the least expensive on a P/E basis, a
FCF yield basis and at the lower end on a TC/EBITDA basis. We reiterate our
Buy rating and $78 price objective, which is based on shares essentially
maintaining their multiple on current-year EPS over the next 12 months (or 16.5x
2007E EPS of $4.65 ex stock option expense). We view the current multiple as
reasonable given strong free cash flow and solid visibility on mid-teens EPS
growth over the next few years. Better than expected earnings or multiple
expansion could foster upside to our price objective over time
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