Staying Wary on Bruker

 | Dec 11, 2012 | 3:00 PM EST
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According to a filing with the Securities and Exchange Commission, Frank Laukien, CEO and president of Bruker (BRKR), purchased 50,000 shares of the company's stock on Dec. 7, at an average price of $13.97. Laukien now owns 39.1 million shares.

Since the purchase, the stock has rallied to about $15, up from under $13 at the beginning of 2012. Laukien's last major insider purchase was in mid-September. We like to track insider purchases, as they can often indicate optimism about the company, and it's particularly interesting to see the CEO buying. Not only does a CEO face the same concerns about diversification as other insiders (if not more so), he or she is also generally well informed about operations and about potential developments in the business.

Bruker makes scientific and research instruments and has a $2.5 billion market cap. In the third quarter of 2012, revenue increased by 7% from the same period in 2011. The company actually got similar dollar amounts of revenue growth from its scientific instruments and energy and supercon technologies segments, even though scientific instruments were responsible for 91% of sales. The energy and supercon technologies segment also produced positive operating income last quarter, contributing to a rough doubling of earnings.

Net income was actually lower in the first half of 2012 than in the same period in the previous year, so we're not sure how much of the company's performance can be expected to continue going forward and how much will turn out to have been a one-time event. Cash flow from operations has been much improved so far this year, though that seems to have mostly been caused by a decrease in accounts receivable, something that's not likely to continue if revenue keeps increasing.

If we take the $0.24 in earnings per share from last quarter and annualize it, we get a price-to-earnings multiple of 16x. That compares favorably with the trailing multiple of 24x, but it's actually about even with where Bruker currently trades in relation to analyst consensus for 2013. So Wall Street is expecting next year to be more or less like the third quarter of 2012 -- no improvement relative to the quarter, but also not much "mean reversion" in the business.

When we look at other scientific and technical instruments companies, we see a pretty wide spread of P/E multiples, though generally, Bruker's peers -- Agilent (A), for example -- trade at a lower multiple of at least their trailing earnings. Agilent actually seems like a fairly interesting company. It carries a trailing multiple of 11x and a forward multiple of 11x.

Agilent's earnings numbers tell a similar story as Bruker's: high earnings growth in its most recent quarter compared with a year earlier, even though growth on the top line was much lower. Analysts apparently don't expect much continued improvement at Agilent and even seem to foresee lower net income in 2013. Given how much cheaper it is, it might be worth looking into.

Agilent isn't the only peer that reported a lower revenue growth rate than Bruker did. The same appears to be the case for Thermo Fisher Scientific (TMO), and Danaher's (DHR) sales actually fell very slightly. As we've noted, these companies carry discounts to Bruker in terms of their P/E multiples, but perhaps Bruker does have some competitive advantages which justify its premium.

We're wary of how Bruker looks, even with the insider purchase. The company has to hold its ground in terms of earnings, and we believe that its most recent quarter included at least something of a temporary boost to the bottom line. It certainly seems like a good idea to do some due diligence on Agilent, which appears to be playing out a similar business story at a lower earnings multiple, before focusing on Bruker.

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