We downgrade our recommendation on Luminex Corporation (LMNX) to Underperform following the company’s lower-than-expected third quarter results and a less favorable outlook. Third-quarter fiscal 2010 adjusted loss per share of 2 cents missed the Zacks Consensus Estimate of earnings of 4 cents.
Losses swelled 19% year over year as revenue growth was offset by higher costs and tax. Top line improved on solid consumables and assay sales, but missed the Zacks Consensus Estimate. Annualized decline in the shipments of analytical instruments contributed to lower system sales in the quarter.The company has narrowed its revenue forecast for fiscal 2010.
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 used by leading research laboratories as well as major pharmaceutical, diagnostic and biotechnology companies.
Luminex has an extensive product portfolio and a healthy pipeline. Moreover, the company continues to expand its xMAP technology-based installed instrument base and has a strong international presence.
However, Luminex operates in the highly competitive life sciences industry, characterized by rapid and continuous technological innovation. The company competes with Affymetrix (AFFX), Life Technologies (LIFE) and Sequenom (SQNM). Moreover, Luminex heavily depends on its 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, Luminex is susceptible to regulatory delays and demand for research and diagnostics applications is expected to remain soft over the next few quarters given the still struggling macroeconomic backdrop. Our recommendation on the stock is supported by a short-term Zacks #4 Rank (Sell).