SIVY ON STOCKS from CNNmoney.com
Wednesday, November 21, 2001

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Accelerating growth

Share prices suggest a 2002 rebound; PerkinElmer's growth poised to pick up.

By Michael Sivy

NEW YORK (CNN/Money) - Investors know that earnings for the current quarter
will be lousy. And they've written off results for the first quarter of
next year as well. At this point, share prices reflect hopes for the second
quarter of 2002.

Nonetheless, the Dow has moved up almost 20 percent since its low of 8,236
on Sept. 21, fueled largely by falling interest rates and investors'
expectations of those eventual earnings rebounds.

After declining steadily since June, 10-year bond yields have turned up in
the past three weeks. This reversal reflects improving consumer confidence,
a drop-off in new unemployment claims and other data suggesting that an
economic upturn may finally be under way.

At the same time, however, those higher interest rates temporarily undercut
stock prices. In addition, stocks could be knocked back by any unusually
bad earnings surprises, by negative guidance for next year's results, or by
another unexpected terrorist attack.

Those possibilities have some market strategists worrying that stocks have
run too far too fast. As a result, the most timely shares in this
environment are those whose prices have not made a big move since
mid-September, but which still enjoy strong growth prospects.

PerkinElmer (PKI: down $0.33 to $28.55, Research, Estimates) is a mid-sized
diversified technology company with annual revenue of just under $2
billion. Since 1998, profit growth has been accelerating. After
single-digit annual earnings gains in the early 1990s, growth picked up to
a compound 13 percent in the past five years. And it's projected to top 17
percent annually during the next five years, supported by a return on
equity of close to 20 percent a year.

One of the most important factors sustaining PerkinElmer's accelerating
profit growth is the company's emphasis on its most promising businesses -
and its efforts to build those franchises. Two weeks ago, PerkinElmer
completed the acquisition of Packard BioScience, a leader in drug-discovery
systems. The acquisition strengthens PerkinElmer's life-sciences division,
which accounted for 16 percent of last year's operating income.

The company's two other fast-growing divisions are optoelectronics (33
percent of income) and instruments (32 percent). PerkinElmer has announced
plans to shed slower growing operations, most notably its fluid sciences
division, as well as some other minor lines. Third-quarter results show how
those moves will boost the company's growth: While net income was up 16
percent, earnings from the operations PerkinElmer's plans to retain rose 27
percent.

Economic weakness may limit earnings growth this quarter and next. And
dilution from the acquisition from the Packard acquisition will erode
full-year results a bit. But analysts still expect profit growth of around
13 percent for 2002, accelerating to the high teens from 2003 onward. At a
current share price of $28.50, PerkinElmer trades at less than 23 times
projected 2002 earnings. That's quite reasonable for a stock with such
attractive niche businesses.


###

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