I bought some VARI friday at 14 1/8. After I bought it huge volume came into the stock.
Here is the recent first call from Weisel, came out last week:
Executive Summary
* We are raising our 12-month price target for Varian to $23 from $17. This
represents a 25.6 P/E on FY00 EPS and a 19.2 P/E on FY01 EPS. Currently VARI
trades at 16.4x and 11.6x FY00 and FY01 EPS, respectively. We believe the
Company will merit industry average multiples or greater as it continues to
generate higher earnings visibility, expand its life sciences/drug discovery
exposure, and show a lengthening pattern of margin improvement. Currently the
industry-average multiple is 27x FY99 and 25x FY00 EPS.
* A close comparable, Waters (WAT-$58-Strong Buy) is trading at 38x and 28x FY99
and FY00 EPS, respectively. Waters is an analytical instrument company with
leading market shares in life sciences/drug discovery markets. Varian has a 40%
share of the NMR market, which account for about 20% of the Company's revenues.
NMR is an emerging drug discovery instrument currently posting 10% annual
growth, a rate that is likely to accelerate.
* Another close comparable is Mettler Toledo (MTD-$28-Buy). Trading at 21x and
18x FY99 and FY00 EPS, respectively, MTD is an instrument company with 45%
industrial exposure and a growing life sciences business currently 30%-40% of
revenues. MTD continues to expand its EBIT margin, which has gone to 10.4% in
FY99E from 3.7% in FY94. While still below the industry average of 15%-23%, we
believe MTD's expanding margins have resulted in expanding multiples, having
gone from 13x to 18x outer-year estimates since its IPO in 1996.
* We expect Varian's 7.7% EBIT margin to expand to industry levels (15%-23%) as
the Company rationalizes its cost structure following its IPO and leverages its
market leadership positions into higher margins. We believe earnings and margin
growth will be near-term value drivers, and we are raising our target price to
$23 from $17 to reflect this expected growth in value. This represents an
expected multiple of 19x on our FY01 EPS estimate of $1.20 one-year from now.
Our rating is STRONG BUY. |
