Friday, August 04, 2006

Color on quarter: Invitrogen (IVGN)

- Several firms are commenting on Invitrogen (NASDAQ:IVGN) after the co yet again announced poor results and lowered guidance:

* JP Morgan notes that with the imbroglio over 2Q results in the midst of an unforgiving earnings season certain to stir up another round of selling (shares are trading down substantially in the after market), the obvious question is what to do from here. While they believe that many had anticipated soft results, in particular for BioProduction, the cursory reaction to revised guidance (1-4% organic growth this year), softness in BioDiscovery, and overall skepticism surrounding the FY outlook (for example, FCF guidance of $200mm, when YTD FCF is only $25mm) will likely be swift and unforgiving, in particular, when coupled with broader issues surrounding management credibility.

For a host of reasons, the firm remains cautiously optimistic, noting that valuation remains the most compelling argument for those contemplating a decision to buy. Assuming an opening price of $54, shares will trade at 14.0x adj. 2007 EPS proj. of $3.85 (incl. FAS 123R), a 25% discount to the broader group of life science tool and bioproduction companies, and by far the cheapest name in firm's group. On a sales multiple, the numbers are equally compelling, with shares trading at 2.2x fwd revs, a significant discount for a company with operating margins projected to reach ~24% this year.

Firm maintains Overweight rating.

* UBS notes they are disappointed by the fact that company management was not more forthcoming at the June 15 analyst day. As such, they believe that some investors will lose patience and expect to see a sharp decline (~15% or more) in IVGN shares at the market open. Given that life sciences companies typically trade in a range of 15-25x forward earnings, they believe that IVGN shares should see a floor at ~ 14 xs 2007 EPS estimate of $3.85 or ~$54.

Firm lowers their 2006-07 sales ests to $1.27B and $1.35B (was $1.32B and $1.44B), and pro forma EPSe (ex-options) to $3.27 and $3.85 (was $3.51 and $4.06). IVGN shares may trade down 10-15%, but could see a floor at $53-54 (~14x 07 EPSe; implies a ~7% free cash flow yield). Despite the lumps, end markets are solid and the firm remains buyers of IVGN shares, especially on weakness.

Maintains Buy but cuts tgt to $75 from $82.

* Deutsche Bank's key takeaways include: 1) Reduced guidance likely provides floor for FY06 results and appears to be very conservative, which is encouraging given recent performance relative to expectations, 2) $500 million share repurchase provides significant support 3) Despite recent poor performance we believe that IVGN management will take the necessary strategic steps to return the company to a more positive growth trend, and given valuation, strong CF generation and the large share repurchase, the firm would be aggressive buyers of IVGN at these levels.

Reits Buy and lowers tgt to $75.

Notablecalls: I think there is no question of what to do with the stock here. Anything below $56 level is a strong buy. Note that the first time IVGN announced its problems (Oct 2005) the shares fell around 12%. This time, with the problems known to many and with some expecting a cut to guidance the shares fell 15% in after market trading. I think IVGN will finish the day with a 7-10% decline. Thats a range of $56-$58.

No comments: