Merrill
Upgrading to a Buy; $52 price target
We are upgrading IVGN shares to Buy as we believe that valuation has become
compelling following recent declines. Shares have fallen about 7% in the past
month, making for an attractive risk/reward in our view. Our price objective for
IVGN is $52 which is based on the stock trading at 19X our 2009 EPS estimate of
$2.70 or a PEG of 1.3x, in-line with current peer multiples. While IVGN has
delivered above average EPS growth recently, we expect this growth to
decelerate and to return to more normalized rates, which we think supports our
call for a peer multiple.
End-market appears steady; investor fears priced in
IVGN has been able to generate steady organic revenue growth over the past few
quarters despite more challenging conditions, which we expect to continue. In its
latest earnings call management stated that they believed IVGN’s end-markets
would remain solid with stable research spending by academia and government,
strong growth in biotech, and mixed growth in pharmaceutical accounts. We agree
with this view. More recently investors have become concerned that IVGN might
make an acquisition that could be poorly received by the street. Additionally,
since the company has been one of the biggest bottom-line beneficiaries of a
weak dollar, the street has been concerned that this leverage could work in
reverse. While both concerns are valid we think they are reflected in the current
stock price.
Upside/downside Risks
IVGN has a strong brand in the life science reagent and tool space and is a
derivative play on the entire life science industry. The firm is highly levered to the
high margin life science research consumables market and has plenty of
opportunities to expand margins, which should help it improve its below-average
ROIC. Risks are depressed pharma and biotech research spending, failed
execution, market share losses, and poorly received acquisitions. |
