Luminex (LMNX) Reiterated at Neutral

We reaffirm our Neutral recommendation on Luminex Corporation (LMNX) after assessing the company’s second-quarter fiscal 2010 results. The company produced a mixed bag in the quarter with profit plunging 27% year over year on account of higher costs and taxes. Adjusted earnings missed the Zacks Consensus Estimate by 3 cents. On a positive note, solid system and consumables sales catapulted to a healthy double-digit top-line growth.

System sales soared 29% year over year, boosted by higher shipments, resulting in a 15% growth in cumulative shipments that reached 7,183 at the end of the quarter. However, this was partly marred by lower assay revenues which fell 4%.

Texas-based Luminex develops, manufactures and markets proprietary biological testing technologies, which have applications across the life sciences industry. The company’s proprietary open-architecture xMAP technology enables fast, cost-effective and accurate conduct and analysis of biological tests (bioassays). The xMAP technology is sold worldwide and is used by leading research laboratories as well as major pharmaceutical, diagnostic and biotechnology companies.

Luminex has an extensive product portfolio and a healthy pipeline which are expected to support growth moving forward. The company continues to expand its xMAP technology-based installed instrument base. As a part of this initiative, it recently launched the MAGPIX analytical instrument which is capable of executing up to 50 tests on a single sample.

Luminex continues to spend on assay developments with some exciting assay products (including NeoPlex 4 and RVP FAST) are currently awaiting regulatory clearance in the U.S. We are also impressed by the company’s strong international presence, which has helped it to broaden its product range and customer base.

However, Luminex operates in the highly competitive life sciences industry, characterized by rapid and continuous technological innovation. Moreover, the company heavily depends on partners to market its instruments and assays, a strategy that has inherent risks.

Capital spending policies of some of these partners are highly variable and depend on governmental assistance, grants or insurance coverage. Moreover, demand for research and diagnostics applications is expected to remain lackadaisical over the next few quarters given the soft macroeconomic backdrop. All these factors have led us to our cautious stance on the stock.

LUMINEX CORP (LMNX): Free Stock Analysis Report

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