Piper Jaffray & Co.
Company Note
June 19, 2006
Invitrogen Corporation (IVGN - $63.94)
Outperform Volatility: Low
5 Reasons to Own Invitrogen
Edward A. Tenthoff, Sr Research Reason for Report:
Analyst Company Update
212 284-9403,
edward.a.tenthoff@pjc.com
William T. Ho, Research Analyst
212 284-9308, william.t.ho@pjc.com
KEY POINTS:
Last week, Invitrogen hosted an analyst day at its headquarters in Carlsbad,
CA. Management reiterated guidance and provided increased detail on how the
company expects to grow going forward.
1.) Improving Top Line. First, management reiterated revenue guidance of
$1.3-1.355 billion for 2006.
* At BioDiscovery, we look for the BioSource acquisition and new product
introductions to grow revenues 15% to $849 million this year. In
particular, we look for gains from the Enabling Technologies group
including RNAi, antibodies and Molecular Probes. While the Illumina oligo
venture is off to a slow start, we look for Invitrogen to ultimately win in
this market.
* Importantly, we do look for a better 2H:06 from BioProduction totaling $462
million for the full year. Specifically, Invitrogen is managing this
business for profitability and considering options for the lumpy Sera
business.
2.) Enhanced Operating Margins. Through various initiatives including
closing/consolidating several facilities around the globe, Invitrogen intends
to improve operating margins by 50 basis points this year. This should lead
to faster bottom-line growth with pro forma EPS (excluding stock comp)
estimated at $4.00 this year and $4.46 in 2007.
3.) Acquiring Growth. The life science tools and supply sector has entered a
period of consolidation. We expect Invitrogen to continue to buy strategic
growth at reasonable prices. The company maintains cash of $716 million and
should generate strong cash flow of $225 million this year to fund these
activities.
4.) Future in Diagnostics. Invitrogen's stated goal is to move "closer to the
patient." We look for diagnostics to become a much bigger business at
Invitrogen with PMA approval of the CISH test for Her2 later this year and
work in early cancer detection.
5.) Potential Stock Buyback. We walked away from the analyst day with the
impression that Invitrogen may put some of that balance sheet strength toward
a share repurchase program. We believe this would send the right message and
shares higher.
From To Price: $63.94
Changes (Previous) (Current)
52 Week High: $88.50
Rating -- Outperform
52 Week Low: $60.14
Price Tgt -- $80.00
Price Target: $80.00
FY06E Rev (mil) -- $1,311.0 (18x 2007E pro forma EPS of$4.46)
FY07E Rev (mil) -- $1,428.5
FY06E EPS -- $4.00
Shares Out (mil): 54.8
FY07E EPS -- $4.46
Market Cap. (mil): $3,503.9
Avg Daily Vol (000): 784
Book Value/Share: $38.16
Cash Per Share: $13.05
Debt to Total Capital: 30%
Est LT EPS Growth: 20%
P/E to LT EPS Growth (FY06): 0.8x
Est Next Rep Date: 07/27/2006
Fiscal Year End: Dec
Pro forma EPS excludes stock comp
expense
Rev 2005A 2006E 2007E EPS 2005A 2006E 2007E
(mil) Mar $0.88A $0.90A $1.06E
Mar $277.1A $309.0A $348.0E Jun $0.87A $0.93E $1.11E
Jun $306.5A $319.5E $357.0E Sep $0.80A $1.04E $1.10E
Sep $289.6A $335.0E $356.0E Dec $0.90A $1.13E $1.19E
Dec $325.3A $347.5E $367.5E FY $3.45A $4.00E $4.46E
FY $1,198.5A $1,311.0E $1,428.5E CY $3.45A $4.00E $4.46E
CY $1,198.5A $1,311.0E $1,428.5E FY P/E 18.5x 16.0x 14.3x
FY RM 2.9x 2.7x 2.5x CY P/E 18.5x 16.0x 14.3x
CY RM 2.9x 2.7x 2.5x
Pro forma EPS excludes stock comp
expense
INVESTMENT RECOMMENDATION:
We reiterate our Outperform rating on Invitrogen and our $80 price target
based on an 18x multiple to our 2007 pro forma EPS estimate of $4.46.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Among the risks associated with Invitrogen are delays or decreases in NIH
funding, causing lower spending at academic laboratories. Invitrogen may not
be able to acquire/license new technologies and products to maintain top-line
growth. Further, Invitrogen may not be able to recognize cost savings and
could miss EPS estimates.
COMPANY DESCRIPTION:
Invitrogen is a leading supplier to the life sciences industry with business
segments focused on BioDiscovery and BioProduction. The company is focused on
innovation to drive organic growth. Invitrogen has completed several
acquisitions to leverage new products through its global infrastructure. |
