Strong third-quarter corporate earnings and future quantitative easing expectations boosted major US markets in October. The Dow Jones Industrial Average, S&P 500 and NASDAQ gained 3.1%, 3.7% and 5.9%, respectively. Unfortunately, higher profits have been spurred by restructuring initiatives, including reduced employment and restrained spending, defying support for economic growth. On October 29, the Commerce Department announced that the US grew at a lackluster annual rate of 2.0% in the third quarter, which was boosted by higher imports. As a result, the Federal Reserve is expected to increase spending, purchasing up to $500 billion and $1 trillion worth of Treasury bonds to help stimulate the economy. Year to date, the Dow has rallied 6.6%, the S&P 500 has gained 6.1% and NASDAQ is up 10.5%

All four IBO Stock Indexes traded higher this month due to strong earnings performances and positive outlooks. The Process/Metrology/Motion Instrumentation Stock Index gained the most, climbing 10.4%. The Diversified Instrumentation, Lab Consumables/Equipment and Laboratory Instrumentation Stock Indexes improved 6.3% 4.6% and 4.0%, respectively.

Laboratory Instrumentation Stock Index

Pacific Biosciences was added to the Index following its IPO on October 27 (see page 2). The company priced 12.5 million shares at $16.0 each, which was the midpoint of the expected range. Shares rose 2.8% on its first day. For October, the Laboratory Instrumentation Index rose 4.0% to close at 579.40. Nineteen companies recorded higher returns, two declined and Transgenomic was unchanged. Caliper Life Sciences experienced the largest price increase, gaining 13%, while Sequenom fell 9%. Year to date, the Index has expanded 2.4%, with 16 companies in positive territory and six with negative returns. X-Rite leads the Index, having gained 86%, while Helicos BioSciences is down 52%.

Cepheid was the first company in the Index to report better-than-expected earnings this month, along with a reassuring forecast. The company announced on October 21 a third-quarter loss of $0.02, $0.04 narrower than expected, and more than doubled its 2010 EPS outlook to $0.13–$0.16. Shares jumped 14.5% the following day. Earlier in the month, on October 7, the company announced an exclusive collaboration with Novartis worth $8 million to develop a molecular test used to monitor leukemia. Shares climbed 2.0% the following day. On October 26, Waters reported EPS of $0.98 (see page 12), $0.01 better than consensus, and raised its full-year EPS outlook by 1% to $4.00–$4.05. Shares were modestly higher. On the same day, Illumina announced EPS of $0.30 (see page 12), $0.06 ahead of expectations, and that 2010 EPS would be higher than the previously forecasted $0.93–$1.00. Shares jumped 6.3% the following day.

On October 27, both Thermo Fisher Scientific and Beckman Coulter beat earnings expectations. Thermo reported EPS of $0.90 (see page 12), $0.07 ahead of consensus, and raised its full-year forecast by 1% to $3.47–$3.53. Shares increased 2.0%. Beckman Coulter reported EPS of $1.00, $0.12 better than consensus, and reaffirmed its full-year EPS outlook of $3.90–$4.00. Shares climbed 5.2% the following day. Also on October 27, Affymetrix reported a loss of $0.05 a share (see page 12), in line with expectations, yet shares slipped modestly the following day. The following day, both Caliper Life Sciences and Bruker announced better-than-expected EPS. Caliper reported EPS of $0.01, compared to expectations for a loss of $0.05, and raised its full-year revenue outlook by 1% to $119–$121 million. Shares climbed 3.1%. Bruker reported EPS of $0.19 (see page 12), $0.06 ahead of expectations, sending shares marginally higher. Excluding recent acquisitions, the fourth quarter and full-year EPS for the Bruker Scientific Instruments segment are expected to be greater than $0.21 and $0.68, respectively.

In other news, Helicos BioSciences received on October 12 a delisting letter from the NASDAQ Stock Market for failure to comply with the minimum bid price requirement (see IBO 10/15/10). Shares dropped 6.8% the following day. On October 21, Caliper released its new high sensitivity assay to improve sequencing work flows, leading shares up 1.9%.

On October 6, Jefferies initiated coverage of both PerkinElmer and Dionex with a “Hold” rating, and initiated coverage of Caliper Life Sciences with “Buy” recommendations. PerkinElmer was later upgraded by Barclays on October 11 to Equal Weight” from “Underweight” with a $25 price target. On October 8, RBC Capital Markets initiated coverage of both Illumina and Waters with “Outperform” ratings. On October 12, analyst Derik De Bruin of UBS mentioned Illumina and Thermo Fisher Scientific as his top picks in the life sciences area, leading shares up 1.8% each. William Blair initiated coverage of Beckman Coulter on October 11 with a “Market Perform” rating.

Process/Metrology/Motion Instrumentation Stock Index

ICx Technologies was removed from the Index following the completion of its acquisition by FLIR Systems on October 4 (see IBO 8/31/10). The Index jumped 10.4% to 403.00 for the month. Six companies traded higher, while Nanometrics slumped 10%. Veeco Instruments recorded the largest increase, gaining 19%. Year to date, the Index is up 9.3% with six improving and FEI down 7%. Zygo has shown the largest increase, rising 59%.

Veeco reported on October 25 EPS of $1.46, $0.21 ahead of expectations. The company projected fourth-quarter EPS of $1.47–$1.74, compared to analysts’ consensus of $1.47 a share. Yet shares fell 5.6% the following day due to an apparent rescheduling of tool shipments.

DA Davidson initiated coverage of FEI on October 1 with a “Buy” rating. On October 13, Veeco announced that its technology had been selected by several leading global hard disk drive manufacturers for next-generation thin film magnetic heads. On the same day, GE expressed bullish comments on the growth of its LED business, further validating Veeco’s future growth prospects. Shares climbed 10.8%.

Lab Consumables/Equipment Stock Index

The Laboratory Consumables/Equipment Stock Index gained 4.6% in October to 575.08. Six companies increased in value, while Techne slipped 1%. Enzo Biochem appreciated the most, gaining 13%. For the year, the Index has advanced 14.7%. Five companies are trading higher and two show negative returns. Sigma-Aldrich has appreciated the most, climbing 26%, while Kewaunee Scientific has fallen 22%.

Earnings for companies in the Index were mixed. Sigma-Aldrich announced on October 21 EPS of $0.83, $0.10 better than consensus, and raised its 2010 EPS guidance by 4% to $3.20–$3.28. Shares improved 1.5%. On October 25, the company sold $300 million of senior notes for general corporate purposes, leading shares up 1.3%. The following day, Life Technologies reported EPS of $0.87 (see page 12), $0.09 above expectations, and raised its 2010 EPS guidance by 2% to $3.48–$3.52. Shares improved 6.1% the following day.

However, two companies fell short of expectations. Enzo reported on October 14 a fiscal fourth-quarter loss of $0.15 (see page 12), $0.04 wider than analysts’ consensus. Yet shares improved 0.5% the following day as the company projected positive operating cash flow in 2011. On October 26, Techne reported fiscal first-quarter EPS of $0.71, $0.02 below expectations, leading shares down 5.6%.

On October 8, RBC Capital Markets initiated coverage of Life Technologies with an “Outperform” recommendation. On October 12, QIAGEN announced an agreement with Abbott to expand its molecular-testing products for HIV, HCV and HPV. Shares jumped 8.3% in the two days ending October 13.

Diversified Instrumentation Stock Index

The Diversified Instrumentation Stock Index grew 6.3% to 119.59 for the month, and is up 17.6% for the year. For both the month and year, all six companies are in positive territory, led by AMETEK, which has gained 13% and 41%, respectively.

Danaher reported on October 21 EPS of $0.60, $0.05 better than expectations, and raised its 2010 EPS guidance by 4% to $2.25–$2.30. The company anticipates fourth-quarter EPS of $0.61–$0.65. Shares climbed 4.3%. On October 25, Roper Industries announced EPS of $0.87, $0.08 ahead of consensus, and increased its full-year outlook by 5% to $3.22–$3.26. Fourth-quarter EPS are projected to be $0.96–$1.00. Shares climbed 1.3%.

The following day, AMETEK reported EPS of $0.72, $0.07 better than expectations, and raised its full-year guidance by 5% to $2.57–$2.59. Fourth-quarter EPS are projected to be $0.68–$0.70. Shares jumped 6.7%. Teledyne Technologies announced on October 28 EPS of $0.79, $0.03 better than consensus, and lifted its 2010 outlook by 3% to $3.06–$3.09. The company projected fourth-quarter EPS of $0.78–$0.81. Shares improved 0.7%.

On October 6, Jefferies initiated coverage of Danaher with a “Buy” rating. The next day, Deutsche Bank started coverage of Agilent Technologies with a “Buy” recommendation and a $41.50 price target. Agilent was also upgraded on October 28 by Stifel Nicolaus to “Buy” from “Hold.”

International

In October, two Pacific Region companies improved and three companies declined. Techcomp showed the higher return, rising 9%. For the year, four companies have negative returns, while Techcomp has gained 35%. JEOL suffered the largest fall for both the month and year, sinking 9% and 31%, respectively.

On October 26, Hitachi High-Technologies reported fiscal second-quarter EPS of ¥45.45 ($0.53) (see page 12), compared to a loss of ¥23.85 ($0.25) a year ago. The company lifted its full-year EPS forecast by 34.9% to ¥123.60 ($1.40), leading shares up 3.8% the following day.

For the month, 10 European companies traded higher and four declined. Exiqon improved the most, gaining 22%. Robotic Technology Systems (RTS) fell 7% and 19% for both the month and the year, respectively. Year to date, eight European companies are in positive territory, five companies are down and Alpha MOS is unchanged. Oxford Instruments has retained the largest price increase, having risen 166%.

Renishaw reported on October 14 preliminary fiscal first-quarter revenue growth of 85% to £60.1 million ($92.5 million) and a more than seven-fold jump in earnings before taxes to £15.1 million ($23.2 million), leading shares up 4.7%. Sartorius reported on October 22 third-quarter EPS of €0.62 ($0.80), compared with €0.44 ($0.63) a year ago. The company reaffirmed its 2010 revenue guidance, but slightly raised its 2010 profit guidance, leading shares up 3.4%. On October 26, Biotage reported EPS of SEK 0.06 ($0.01), compared to SEK 0.01 ($0.00) a year ago. However, shares slipped 2.7%.

On October 21, RTS announced a conditional agreement to divest its Life Science segment (see page 2), sending shares down 7.1%.

Line Graph: IBO Instrument Industry Stock Index

Lab Ins. Stock Index S&P 500

Oct-08 456.82 232.26

Nov-08 416.63 214.88

Dec-08 390.29 216.56

Jan-09 397.41 198.01

Feb-09 376.99 176.24

Mar-09 393.81 191.29

Apr-09 428.75 209.26

May-09 446.23 220.37

Jun-09 479.85 220.41

Jul-09 522.15 236.75

Aug-09 528.47 244.70

Sep-09 543.19 253.44

Oct-09 535.42 248.43

Nov-09 548.41 262.68

Dec-09 565.94 267.35

Jan-10 546.93 257.47

Feb-10 566.22 264.81

Mar-10 585.87 280.38

Apr-10 596.47 284.51

May-10 557.61 261.19

Jun-10 531.11 247.12

Jul-10 513.20 264.12

Aug-10 499.94 251.58

Sep-10 556.95 273.61

Oct-10 579.40 283.69