Applied Biosystems, GP
Executive Summary
Applied Biosystems Group, a unit of Applera, helps make leaps and bounds in life
sciences. It supplies instruments, reagents, software, and related services to the life
science industry and research community. Foreign business makes up approximately
46% of sales. Through its Applications and Products group, the company supplies life
sciences firms and research institutes with a host of products and services for researching
genes and proteins. They perform many services, which include studying how drugs
interact with the body's systems and genetic make-up, testing food and the environment
for contaminants and performing DNA-based identification. The firm oversees licensing
of sister company and key client Celera Genomics Group's genome databases as that
company tries to focus on drug development. While the company's customers are busy
making the next generation of drugs, fertilizers, diagnostics and other "modern miracles,"
with the help of Applied Biosystem's equipment, it is busy developing the products that
will help bring the next revolution in life sciences. As researchers are just beginning to
understand the role of proteins in developing, curing, and even preventing disease,
developers at the firm's Proteomics Research Center are creating tools to bring that
understanding into sharper focus and using that information to yield the "next" next
generation of life science products. In light of recent corporate outlooks, Applied
Biosystems Group believes that operations are on track to meet its previous guidance for
diluted earnings per share from continuing operations for fiscal 2003. The company said
it expected 2003 earnings of 85 cents to 95 cents a share. In addition, recent
developments regarding ABI’s genotyping technological advancements have stirred our
interest in the company. We feel as though this breakthrough will have a great effect on
the company’s earnings in the future.
UConn Foundation Student Managed Fund
Trade Form
Presentation Date: 01/29/03
Covering Managers: Ellen Huebner, Lisa Lin
Anticipated date for trade: 01/30/03
Stock Name: Applied Biosystems
Ticker: ABI
Decision: Buy
Number of Shares: approximately 290
Approximate cash value: $5,000
Limits:
Stop Loss: $12.04 or 30% of Current Price
Appreciation Review price target: $20.65
Vote Results
For: 11 Against: 0 Abstain 0
Trade Executed by: Professor Ghosh
Trade Manager present: Javed Singha
University of Connecticut Student Managed Fund
Stock Analysis Report
February 3, 2003
Applied Biosystems, GP
MidCap:
Industry:
Sector:
Valueline:
$4.4 billion
Technology
Scientific and Technical Instruments
Timeliness: 3
Safety:
3
Technical: 2
Business Summary:
Applied Biosystems Group, a business of Applera Corporation, is engaged
principally in the development, manufacture, sale and service of instrument-based
systems, reagents and software, and the provision of contract services for life science and
related applications. Its products are used in various applications, including synthesis,
amplification, purification, isolation, analysis and sequencing of nucleic acids, proteins
and other biological molecules. The markets for Applied Biosystems' products span the
spectrum of the life sciences industry and research community, including basic human
disease research; genetic analysis; pharmaceutical drug discovery, development and
manufacturing; human identification; agriculture, and food and environmental testing.
Universities, government agencies and other non-profit organizations engaged in research
activities also use Applied Biosystems' products.
Financial Data:
On Thursday, January 23, Applied Biosystems reports second quarter fiscal 2003
earnings ended December 31, 2002. Operating income in the second quarter of fiscal
2003 was $33.9 million, including the special charges of $33.8 million, compared to
$65.9 million, including the special charge of $2.2 million, in the prior year quarter. Net
income in the second quarter of fiscal 2003 was $29.2 million compared to $49.0 million
in the same quarter last year. The special charges reduced net income by $23.4 million in
the second quarter of fiscal 2003 and by $2.2 million in the prior year quarter. Net
revenues for the Group (Applera Corporation-Applied Biosystems Group Common
Stock) for the second quarter of fiscal 2003 were $444.7 million, an 8 percent increase
over the $411.1 million reported in the prior year quarter. Revenues from instrument
sales in the second quarter of fiscal 2003 were $225.9 million, a 13 percent increase over
the $199.7 million reported for the prior year quarter. This increase was driven primarily
by the success of the Applied Biosystems 3730 DNA Analyzer product line, the
QSTAR® XL LC/MS/MS System, the Q TRAP(TM) LC/MS/MS System, and the
Applied Biosystems 4700 Proteomics Analyzer with TOF/TOF(TM) optics. On Friday,
February 7, UBS Warburg upgraded Applied Biosystems from neutral to buy
Ratio Comparison: For these ratios, we compared Applied Biosystems to the S&P
500, the overall Industry of Genomic Scientific Research, and Molecular Devices one of
ABI’s main competitors.
Valuation Ratios
P/E Ratio (TTM)
P/E High - Last 5 Yrs.
P/E Low - Last 5 Yrs.
Beta
Price to Sales (TTM)
Price to Book (MRQ)
Price to Tangible Book
(MRQ)
Price to Cash Flow (TTM)
Price to Free Cash Flow
(TTM)
% Owned Institutions
Dividends
Dividend Yield
Dividend Yield - 5 Year
Avg.
Dividend 5 Year Growth
Rate
Payout Ratio (TTM)
Growth Rates(%)
Sales (MRQ) vs Qtr. 1 Yr.
Ago
Sales (TTM) vs TTM 1 Yr.
Ago
Sales - 5 Yr. Growth Rate
EPS (MRQ) vs Qtr. 1 Yr.
Ago
EPS (TTM) vs TTM 1 Yr.
Ago
EPS - 5 Yr. Growth Rate
Capital Spending - 5 Yr.
Growth Rate
Financial Strength
Quick Ratio (MRQ)
ABI
Industry Sector
S&P
24.79*
27.67
33.11
NA
52.93
65.88
NA
14.79
19.47
1.51
0.97
1.87
2.24*
2.78
4.15
3.21
4.14
4.3
3.21
14.58
5.13
18.51
5.12
26.2
500 MDCC
22.63 38.12*
49.17 NA
16.56 NA
1
1.67
2.82 2.55*
4.19
1.86
6.56
16.29
2.28
23.47
26.27
89.16
ABI
18.95
22.2
25.64
16.25
41.55
46.48
61.92
85.8
Industry Sector
S&P 500 MDCC
0.97
1.03
0.76
2.26 NA
NA
0.51
0.22
1.33
-18.15
-51.97
-2.74 NM
23.74
5.07
5.59
26.88
ABI
Industry Sector
S&P 500 MDCC
0
NM
0
8.15*
17.65
13.26
2.73*
15.89
7.65
12.56
3.42
17.26
4.52 10.76*
10.84
18.06
16
33.54
26.91 40.50*
14.71
9.81
31.54
9.87
21.87 NA*
9.49 NM
-38.33*
-17.39*
3.14
11.2
ABI
8.75 18.94*
0.99
-15.09
-7.89
36.31
Industry Sector
S&P 500 MDCC
1.68
1.9
2.4
1.14
4.83
Current Ratio (MRQ)
2.16
2.64
2.86
1.66
6.2
LT Debt to Equity (MRQ)
0
0.68
0.27
0.74
0
Total Debt to Equity (MRQ)
0.01
0.75
0.33
0.99
0
Interest Coverage (TTM)
347.62
2.83
15.65
11.11 NM
Profitability Ratios (%)
ABI
Industry Sector
S&P 500 MDCC
Gross Margin (TTM)
52.1
47.18
51.32
47.38
60.5
Gross Margin - 5 Yr. Avg.
53.5
47.83
52.84
47.71
62.13
EBITD Margin (TTM)
19.71
9.79
12.56
19.73
12.86
EBITD - 5 Yr. Avg.
17.76
11.98
20.16
21.86
5.38
Operating Margin (TTM)
14.37
6.79
9.62
17.92
7.7
Operating Margin - 5 Yr.
Avg.
13.66
7.71
14.75
18.2
1.68
Pre-Tax Margin (TTM)
14.67
8.26
15.02
16
9.51
Pre-Tax Margin - 5 Yr. Avg.
15.1
6.61
18.41
17.33
5.56
Net Profit Margin (TTM)
9.04*
4.57
9.32
10.78 6.66*
Net Profit Margin - 5 Yr.
Avg.
10.69
3.53
11.29
11.38
1.36
Effective Tax Rate (TTM)
28.86
31.54
29.49
31.62
34.18
Effective Tax Rate - 5 Yr.
Avg.
31.53
35.68
33.24
35.41
134.36
Management Effectiveness
(%)
ABI
Industry Sector
S&P 500 MDCC
Return On Assets (TTM)
8.41*
3.87
3.89
6.2 4.50*
Return On Assets - 5 Yr.
Avg.
10.03
3.33
8.45
7.65
1.96
Return On Investment
(TTM)
11.59*
5.35
6.37
10.05 4.96*
Return On Investment - 5
Yr. Avg.
15.79
5.35
13.4
12.38
2.5
Return On Equity (TTM)
13.22*
10.9
8.78
18.4 4.96*
Return On Equity - 5 Yr.
Avg.
18.73
13.59
18.23
21.39
2.51
Efficiency
ABI
Industry Sector
S&P 500 MDCC
Revenue/Employee (TTM) 347,991* 212,069 370,332 485,950 276,097*
Net Income/Employee
(TTM)
31,456*
20,419 67,021
74,284 18,392*
Receivable Turnover (TTM) 4.62*
5.42
7.09
9.48 4.43*
Inventory Turnover (TTM)
5.45
4.92
14.61
10.84
2.22
Asset Turnover (TTM)
0.93*
0.82
0.75
0.95 0.68*
CHART:
Recent News:
Applied Biosystems Announces Enhancements to the Celera Discovery
System and New Academic Subscription Model
Tuesday January 28, 7:03 am ET
FOSTER CITY, Calif.--(BUSINESS WIRE)--Jan. 28, 2003--Applied Biosystems Group
(NYSE:ABI - News)
-Throughput Sequence Analysis Tools for
Comparative Genomics, Integration of Additional Public and Proprietary Genomic Data,
and an Individual Subscription Model for Academic Researchers
Applied Biosystems Group (NYSE:ABI - News) an Applera Corporation business, today
announced a new release of the Celera Discovery System(TM) (CDS) online platform
that includes enhanced visualization and analysis tools for comparing the human and
mouse genomes, additional data integration, and a new subscription model for academic
researchers.
"The latest enhancements to CDS should enable subscribers to more easily apply
comparative genomics to their discovery process and to better understand the roles of
genes in the context of evolutionary conservation," said Deborah Smeltzer, Vice
President of the Knowledge Business for Applied Biosystems. "Applied Biosystems and
Celera Genomics have made significant investments in data aggregation, validation,
curation, classification, quality assurance, and have further integrated public reference
data. We believe our subscribers will save time and costs through online access to an
integrated set of high-quality data and analysis tools that eliminate the need for data
infrastructure development and maintenance."
New subscriptions to the Celera Discovery System online platform will now be available
to researchers at academic and non-profit institutions through a single-user, one-year
subscription agreement. These researchers can easily begin the subscription process
online through the CDS website, available at http://www.celeradiscoverysystem.com.
Applied Biosystems and Celera Genomics are collaborating to integrate Celera's genomic
and biological information with Applied Biosystems' products and services. CDS
subscribers can now order the Applied Biosystems Assays-on-Demand(TM) products,
ready-to-use, functionally validated assays for genotyping and gene expression analysis,
within the context of their analysis results using CDS.
The new release of CDS includes an updated interactive Map Viewer, which provides
enhanced and customizable graphical displays for comparing human and mouse genes
within their genomic context. The Map Viewer also now enables subscribers to conduct
BLAST searches in batch mode and to customize views of data from the entire
chromosome to the single nucleotide level. These enhancements are intended to facilitate
high-throughput analysis and should enable subscribers to analyze biological
relationships within any region of the human or mouse genomes.
Applied Biosystems Announces SNPlex Ultra High Throughput Genotyping
System Wednesday January 8, 7:00 am ET
Reagent and Software Product Designed for Use with Latest Generation Capillary
Electrophoresis Sequencing Systems to Enable Cost Savings for Academic and
Pharmaceutical Researchers
FOSTER CITY, Calif.--(BUSINESS WIRE)--Jan. 8, 2003-- Applied Biosystems Group
(NYSE:ABI - News), an Applera Corporation business, today announced the
SNPlex(TM) system, a reagent and software product designed to allow researchers to
conduct ultra high throughput genotyping using the Applied Biosystems 3730xl and 3730
DNA Analyzers. This genotyping product could enable production scale laboratories to
analyze more than one million genotypes per instrument per day, at an expected cost as
low as one cent or less per genotype.
The SNPlex(TM) system uses multiplexing (multiple reactions in a single tube or well)
to rapidly identify large numbers of target genetic sequences in a single biological
sample. It is based on Applied Biosystems' proprietary oligonucleotide ligation reagent
and electrophoretic detection technology. This technology is also employed in the Celera
Diagnostics cystic fibrosis test, which has become one of the leading tests for detection of
mutations associated with this disease.
The SNPlex(TM) system will operate on the same instrument platform widely used for
sequencing and linkage mapping, and can be used with both customer-identified SNPs
(single nucleotide polymorphisms), and with those identified by Applied Biosystems as
part of the Applera Genomics Initiative. The combination of instruments, reagents, and
software is expected to offer one of the most powerful and cost effective genotyping
systems available. Collaborative projects with customers are underway, with broader
product release expected by mid-calendar 2003.
Models:
Risk Free Rate:
S&P500 (10 year average return, rm):
Beta:
1. DDM Model
3.975%
7.930%
1.45
k=rf +b(rm-rf): 9.71%
Earnings 1993: .36
Earnings 2002: .79
ge: (0.79/0.36)^(1/9)-1= 9.125%
Average ROE: 20.27% (4 year average)
Average Retention: 1-[(.214+.171+.17+.12.6)/4] = 78.7%
gr: ROE*retention ration (b)=..2027*.787= 15.95%
Average g= (.2027+.1595)/2= 18.11%
2). Multistage Growth Model
Is not necessary since this is a mature company growth will continue to be steady.
3). No Growth
Po = Eo/k = .79/.0971 = $8.13
4) P/E Model
Avg P/E ratio 22
Expected EPS (VLIS)= $0.90
5-Year Horizon: 1.75
P/E Ratio: 23.3
Projected high price for the next 5 years: $1.75 *23.3 = $40.77
Lowest price in the last 3 years: $13.00
Current Price: $17.21
5. Valuepro.net
Intrinsic Value
Growth Rate
Risk Free Rate
WACC
23.85
15%
3.975%
9.31
6. SSG Model
Historical Sales
Sales Growth Used
Historical EPS
EPS
Recommendation: Buy
Upside/Downside potential
7. Value line Model
DOV: Long Term Debt + Shareholder Equity:
1125.2(million)
Cash Flow Growth Estimate:
12.5%
Common Shares Outstanding:
225 (million).
Average Annual P/E Ratio:
22
Return on Total Capital:
15%
The Future Price: 1125.2*1.125^10/225*22*.15=
$53.90
(Discount the future price at 15% for n=10) =
$13.32
Although we bought Applied Biosystems at a premium relative to this calculation, we
feel as though the recent developments regarding ABI’s genotyping technological
advancements will have a greater effect on the company’s earnings in the future.
Recommendation:
Buy 290 Shares at $17.21 = $4,990.90
Downside Review: $12.04
Stop Loss:
$13.76(-20%)
Upside Review:
$20.65 (20%)