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BECKMAN INSTRUMENTS REGISTERS 4-3/4 POINT STOCK GAIN TO 25-3/4 IN THIRD QUARTER; MEDICAL SECTOR STOCKS STILL SUFFER AS "M-D-D-I" INDEX FALLS 3.7%

This article was originally published in The Gray Sheet

Executive Summary

Beckman Instruments jumped 4-3/4 points to 25-3/4 in the three months ended Sept. 30, making it the second highest point and percentage gainer on the "M-D-D-I" Index of New York/American Stock Exchange-traded issues tracked by "The Gray Sheet." Most of Beckman Instruments" 22.6% advance followed Merrill Lynch's initiation of cover- age on Sept. 14 with an "above average" intermediate term rating and a "buy" rating long term. Merrill Lynch analyst Maureen McGann said in her report that the life science and clinical diagnostic instruments company "is positioned for considerable acceleration in earnings when its markets experience a cyclical upturn, which we expect in 1995." McGann's rating was based on the issue being undervalued relative to anticipated growth in sales and earnings as well as to other instrument and diagnostics companies. "Tight control of [sales, general and administrative expenses] and [research and development] expenses is producing meaningful margin and earnings expansion despite a slow demand environment," the report states. Five year earnings per share growth is estimated to be 16% with smaller improvements expected in the near term. For the second quarter ended June 30, earnings were up 9.3% to $11.7 mil. on sales of $221.8 mil., down 1.5% ("The Gray Sheet" July 26, p. 13). Enzo Biochem was the leading point and percentage gainer for the three months, moving up 6 points, or 70.6%, to 14-1/2. The issue has been a strong performer, leading the 1992 Index with a 96.7% increase to 7-3/8 for the year. The biotechnology and diagnostic services company may be benefiting in part from enthusiasm over its broad-based patent position for antisense therapeutic drug technology. All together, the 29 stocks tracked on a quarterly basis by "The Gray Sheet" fell 3.7% over the three months ended Sept. 30, underperforming the Dow Jones Industrial Average, which gained 1.1% for the period. The decline marks the third consecutive quarterly Index loss for 1993 and follows a 16.5% fall in 1992. Overall, 11 issues advanced over their June 30 level while 17 were down. One issue, Nichols Institute, was flat. Imcera was among the seven "M-D-D-I" Index point-or-better gainers for the period. The issue, which advanced 2-3/8 to 32-3/8 (7.9%) for the quarter, appeared to benefit from recent developments at its Mallinckrodt Medical unit. Imcera advanced following the Sept. 21 announcement that Mallinckrodt's core airway management business was expanding in Europe and into related anesthesia/respiratory disposables via the acquisition of DAR SpA. The Mirandola, Italy-based anesthesiology and respiratory care product manufacturer was purchased for approximately $41 mil. ("The Gray Sheet" Sept. 27, I&W-13). DAR gives the firm "a significant presence in Italy," which is "the third largest health care market in Europe and fifth largest economy in the world," the firm said. The acquisition follows on the heels of the purchase of Oryx Pharmazeutika AG, announced in August. The Zurich, Switzerland distributor of radiopharmaceutical products was owned by OPO Stiftung, a pharmaceuticals holding company. Imcera stock may also have been given an additional boost by the Sept. 23 announcement that Mallinckrodt had gained exclusive rights to market Centocor's Myoscint imaging agent in Europe, the Middle East and Africa. Mallinckrodt has been a bright spot for Imcera recently, posting a fiscal 1993 (ended June 30) sales gain of 26% to $783.1 mil. and 36% rise in earnings to $174.4 mil. ("The Gray Sheet" Aug. 16, p. 31). Owens & Minor's stock, pulled up in the April-June period by now supply contracts and physical plant expansions, continued its upward momentum during the last three months, adding 2-1/4 to 23, a 10.8% advance. O & M announced two multimillion dollar supply contracts in July. The firm was selected as the prime medical/surgical distributor for the Detroit Medical Center for a five-year contract and also negotiated a three-year supply agreement with purchasing program Purchase Connection ("The Gray Sheet" July 26, p. 23). The wholesale distributor of medical and surgical supplies announced plans Sept. 28 to open a distribution center in Seattle by the end of the year. In addition to distribution centers, profits are also on the rise at O & M; the firm reported an 18% rise in earnings from continuing operations and an 17.8% increase in sales for its second fiscal quarter of the year ("The Gray Sheet" July 26, p. 11). O & M may also benefit further from difficulties at Baxter; the company won two con- tracts away from Baxter in June ("The Gray Sheet" June 14, p. 10 and June 21, I&W-15). Baxter, buffeted by the same tax and health care reform issues that hit many medical stocks during the three months, fared worse than most firms, dropping 6-3/8 to 22-1/4 (22.3%). Baxter's stock, which is near a three-year low, continues to descend as the firm faces the fallout from its guilty plea earlier this year for cooperating with an Arab League boycott of Israel. The firm was suspended from entering into contracts with the U.S. government as a result of an investigation into the firm's sales practices, as well as the Arab League boycott ("The Gray Sheet" Aug. 16, p. 2). Most recently, New York state has announced that it will not award any new contracts nor renew existing contracts because of the Arab League boycott plea. The issue suffered most of the loss this quarter following a Sept. 7 announcement that third quarter earnings would be lower than year-earlier levels ("The Gray Sheet" Sept. 13, p. 13). Baxter simultaneously announced a restructuring effort which includes a hiring freeze, management salary reductions and long- range cost management initiatives. At least one analyst downgraded the stock following the announcement. U.S. Surgical, down 6-1/2, or 23.6%, to 21, dropped several points following the July 15 announcement of a $22 mil. loss for the second quarter ("The Gray Sheet" July 19, p. 19). The loss stemmed, in part, from excessive inventory of USSC products at hospitals and distributors; the inventory levels are expected to reach "optimum" levels in five to six months ("The Gray Sheet" Sept. 27, I&W-3). U.S. Surgical plans to unveil details of a cost-cutting plan the week of Oct. 11 when it reports third quarter sales and earnings. Ballard Medical, formerly tracked by "The Gray Sheet" on the O-T-C Index, is now tracked by the "M-D-D-I" Index. The issue moved on Sept. 9 from the NASDAQ system to the New York Stock Exchange under the symbol "BMP" ("The Gray Sheet" Sept. 6, p. 12).
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