Monday, June 30, 2014

Pall Corp Equity Research

Pall Corp presents one of the most compelling investment propositions in the industrial sector. The filtration and separation company's operations span a wide range of industries, where it competes with companies such as 3M  and Donaldson. However, with the stock trading on 29 times current earnings, it's hard not to conclude that much of the good news is already in the price. With that said, what  can Pall do to take the stock higher?  


A nice mix of stability and growth
The interesting thing about Pall is its combination of earnings drivers that ensure it can generate operating income through the economic cycle. The company operates out of two operating segments. The life science segment generates underlying demand from throughput activity in relatively stable industries such as pharmaceutical production. Meanwhile, the industrial segment is more focused in cyclical industries such as aerospace, microelectronics, and process.


A quick look at its segmental revenue (broken down into industry groupings) shows its life science segment has done relatively better than the industrial segment in recent years -- which is  to be expected given the sluggish global economic recovery. The life sciences end market is in blue with dotted lines. I'm focusing on consumable sales, rather than systems, because they made up nearly 89% of sales in the last quarter and tend to be higher margin.