US indexes ended 2015 mostly lower as the Dow Jones Industrial Average and S&P 500 slipped 2.2% and 0.7%, respectively, representing the worst performance for the two Indexes since the 2008 financial crisis. The NASDAQ advanced 5.7% for the year but endured a notable slowdown compared to double-digit gains in each of the previous three years. Equity markets were mostly restrained as a result of the US Federal Reserve’s shift in monetary policy, currency headwinds, falling oil prices and economic slowdown in China. Even with a stronger employment environment, the change in monetary policy may destabilize a fragile economy that has become dependent on excess liquidity.

IBO’s newly established Laboratory Instruments and Products Stock Index (see IBO 1/31/15) advanced 10.1% for the year, far outpacing returns for major US indexes. While currency slowed both top and bottom line results for a majority of companies in the Index, along with weak industrial markets, growth was spurred by biopharmaceutical demand, especially in the US and Asia Pacific. Demand from clinical, diagnostics and applied markets further accelerated growth for several companies in the Index as well. IBO’s Diversified Laboratory Stock Index advanced 2.0% for the year.

Laboratory Instruments and Products

The Laboratory Instruments and Products Stock Index continued its run of double-digit gains for the fourth consecutive year, spurred by strength in the life science and diagnostics markets, as well as rising profits. Aside from significant demand from the biopharmaceutical markets, a number of companies were able to overcome certain market challenges and currency headwinds by implementing cost saving measures, acquisitions, share repurchases and restructuring activity in order to boost profitability. Firms were mostly rewarded for performance measures, as 16 of the 22 companies in the Index recorded gains in 2015, including 10 with double-digit gains.

Technological innovation, especially in NGS, also attracted investors in 2015. For the second time in three years, Pacific Biosciences recorded the largest price increase among companies in the Index, as shares soared 67.5% for the year. With the recent launch of its Sequel system (see IBO 10/15/15), along with new barcode sample preparation kits and an ongoing molecular diagnostics development agreement with Roche, investors are anticipating greater market penetration. The company also continued to reduce its cash burn rate and improved margins as a result of lower development costs. However, even with an annual average stock appreciation rate of 98% over the last three years, shares remain 17.9% below the company’s IPO price of $16 in October 2010 (see IBO 10/31/10).

PerkinElmer and Waters also produced strong gains for the year, climbing 22.5% and 19.4%, respectively, as both companies reported stronger-than-projected adjusted EPS and revenues for the first nine months of the year, driven by strong biopharmaceutical sales, share repurchases, product mix and improved margins. In the first nine months, PerkinElmer and Waters spent $72 million and $249 million to repurchase 1.5 million and 2.0 million shares, respectively. PerkinElmer further benefited from reduced SG&A expenses and strong demand within the higher-margin Chinese newborn screening business. Estimated 2015 adjusted EPS for PerkinElmer and Waters are anticipated to grow 4% and 7%, or 13% and 17% excluding currency, respectively.

Several of last year’s decliners—Bio-Rad Laboratories, Bruker and QIAGEN—were among this year’s winners, with each recording double-digit gains in 2015. Following two years of declining adjusted EPS growth, Bruker projected 2015 EPS to grow 3%, or 16% excluding currency. The company beat analysts’ earnings estimates in each of the first three quarters by an average of 28%. While the company’s revenues for the first nine months have contracted by double digits as a result of currency, profits were driven by non-core divestments, ongoing outsourcing, completed CAM restructuring measures and a recovery within its NMR business. Earnings further benefited from share buybacks, as the company spent $25 million to repurchase 1.3 million shares in the first nine months of the year. It also initiated a $225 million stock buyback plan in the fourth quarter. Shares jumped 23.7% in 2015.

Similarly, Bio-Rad, which advanced 15.0% for the year, recorded stronger-than-expected results in spite of lower top line growth, which is projected to decline 7% for the year. The company managed to offset disappointing revenue results with favorable product mix and cost saving measures, including the consolidation of manufacturing facilities. While the company’s valuation appears lofty given its poor revenue performance, Bio-Rad holds significant investments across its balance sheet. These assets, which include cash, short-term investments and other investments, such as preferred shares of Sartorius, grew exponentially during the year, and could be worth north of $70 per share when calculating unrealized gains.

While QIAGEN’s earnings for the first nine months were less of a surprise, the company recorded positive adjusted EPS growth in the face of significant currency headwinds, declining US HPV sales and increased operational investments. Full-year adjusted EPS are projected to grow 8%, or 16% excluding currency, led by acquisitions and strength in most emerging market regions. The company’s expanding diagnostics testing menu, growing personalized healthcare portfolio and commercialization of its NGS benchtop system should allow the company to achieve high single-digit adjusted EPS growth over the next several years.

Similar to the overall Index’s returns, both Mettler-Toledo and Thermo Fisher Scientific achieved double-digit gains for the fourth consecutive year. Mettler advanced 12.1% in 2015 as the company produced strong margin expansion in the first three quarters of the year, despite continuing challenges in China outside of its life science business and currency headwinds. Adjusted earnings are projected to grow 10% in 2015 as a result of cost control measures, favorable pricing, operating efficiencies and share repurchases. The company repurchased 1.2 million shares for roughly $371 million in the first nine months of the year.

Thermo also achieved strong margin growth as it continued to digest its acquisition of Life Technologies (see IBO 4/15/13), which generated cost and revenue synergies, and tax benefits. Earnings further benefited from $500 million in share repurchases during the first nine months of the year. Full-year adjusted EPS for the company are projected to grow 6%, or 16% excluding currency. Thermo remains on track to deliver 2015 cost synergies of $130 million and revenue synergies of $150 million in 2016.

Finally, Luminex and Becton, Dickinson, which advanced 14.0% and 12.1%, respectively, round off the list of 10 companies to record double-digit share gains in 2015.

Valuation concerns and missed revenue estimates also impacted returns in 2015. Despite a strong start to the year, both Affymetrix and Illumina recorded only modest share gains in 2015, up 2.2% and 4.0%, respectively. Both companies surrendered gains after missing third quarter revenue projections and trading at high price-to-earnings multiples. In addition, Illumina lowered its full-year sales and earnings outlook due to slower-than-projected benchtop sequencing orders in the third quarter. The company also sustained slower adjusted EPS growth as a result of currency headwinds and increased investments in clinical diagnostics. Notwithstanding growing competition and a reduced outlook, Illumina maintains a commanding lead in the sequencing market and projected 2015 adjusted EPS to climb 20%.

Affymetrix also missed analysts’ third quarter revenue projections. However, the company reported average quarterly adjusted EPS growth of 88% for the first three quarters, led by strong consumables sales and clinical demand, as well as improved manufacturing efficiencies and cost control measures. For 2015, adjusted EPS are projected to grow 37%, representing the highest estimated growth among Index companies for the second consecutive year. Nevertheless, future earnings are projected to normalize, with growth in the high-single digits.

Not all Index companies recorded gains in 2015. Fluidigm showed the sharpest decline, falling 68.0% due to disappointing financial results in the first half of the year. Sales were negatively impacted by currency headwinds and lower-than-projected sales of Biomark system and genomics analytical consumables. Particularly weak demand in Japan further accelerated the company’s revenue shortfall. Despite a number of challenges, demand stabilized in the third quarter as result of strong services and biopharmaceutical sales.

FEI, MTS Systems and Harvard Bioscience slumped 11.7%, 15.5% and 38.8% for the year, respectively, as all three companies missed calendar year third quarter revenue and adjusted EPS expectations. As such, both FEI and Harvard reduced full-year revenue projections.

Bio-Techne declined 2.6% for the year due to weak demand in Japan and lower OEM shipments within the Clinical Controls segment. The company’s acquisition spree further contributed to disappointing earnings as a result of timing of purchases and contribution of product mix. Nevertheless, the company’s growth prospects remain attractive in part due to the acquisitions, as well as leadership changes, geographic expansion in China and extended distribution channels with Thermo and VWR.

International

Major international equity indexes were mixed in 2015. China’s Shanghai Composite, while extremely volatile, climbed 9.4% for the year, as the central bank lowered interest rates and injected billions into the financial system to stimulate the economy. Japan’s Nikkei 225 advanced 9.1% in 2015, benefiting from quantitative easing and currency devaluation, which helped boost corporate earnings.

However, China’s slowing economy and devaluation of the yuan impacted equity markets in Southeast Asia, as the Singapore STI and Indonesia Jakarta Indexes fell 14.3% and 12.1% for the year, respectively. Other Asia Pacific indexes also traded lower, including India’s Sensex 30 and Hong Kong’s Hang Seng, which contracted 5.0% and 7.2%, respectively.

Despite elevated profits for most Japanese companies as a result of currency, prices for only three of the seven Pacific Rim companies in the IBO Stock Table traded higher in 2015. Shimadzu recorded the strongest gain, rising 66.0%, while Precision System Science fell 43.9%.

European equity markets were also mixed. Italy’s FTSE MIB and Germany’s DAX advanced 12.7% and 9.6%, respectively, while the UK’s FTSE dropped 4.9%. Most UK-based companies in the IBO Stock Table declined, led by Oxford Instruments, which dropped 39.8%. However, both Abcam and Halma advanced for the year, climbing 43.2% and 25.8%, respectively.

Prices for the other European companies in the IBO Stock Table all traded higher in 2015, led by Sartorius, which soared 220.4%. Biotage also returned a strong gain for the year, climbing 87.8%.

December

US equity markets contracted in December, as the Dow, S&P 500 and NASDAQ fell 1.7%, 1.8% and 2.0%, respectively. Markets were pressured by the Fed’s monetary tightening and soft economic data, including weak durable goods orders. In addition, third quarter GDP growth was revised down 10 basis points to a modest 2.0%.

Laboratory Instruments and Products

In December, the Index improved 2.3 %, with just over half of the companies trading higher. Pacific Biosciences recorded the highest price increase for the month, climbing 28.3%, while Fluidigm dropped 4.9%.

MTS Systems missed fiscal fourth quarter adjusted EPS estimates due to currency, product mix and higher personnel expenses. The company projected fiscal 2016 EPS of $3.03–$3.28. Shares contracted 5.2% the following day but ended the month only marginally lower. Kewaunee Scientific reported on December 8 that GAAP EPS for the fiscal second quarter 2016 contracted 42% to $0.26 due to a strong comparison and a nonrecurring employee expense. However, shares improved 2.3% for the month.

Enzo Biochem slipped 1.1% for the month as the company was confronted with a proxy contest, initiated by Lone Star Value Management, to replace two of its incumbent directors. However, the investment firm later withdrew its proxy vote. On December 7, Enzo reported fiscal 2016 first quarter revenues ahead of analysts’ consensus and in-line adjusted EPS.

There were several analysts’ rating revisions this month, especially from Goldman Sachs. On December 8, Goldman upgraded Thermo from “Buy” to “Conviction-Buy.” It also upgraded both Agilent and FEI from “Neutral” to “Buy,” with $48 and $94 price targets, respectively. Finally, Goldman cut PerkinElmer from “Neutral” to “Sell” with a price target of $44 per share and lowered PerkinElmer’s estimated 2016 organic growth rate from 4.6% to 3.6%.

PerkinElmer was also downgraded by Wedbush on December 3 from “Outperform” to “Neutral.” On December 9, Robert W. Baird upgraded Agilent from “Neutral” to “Outperform,” with a price target of $48 per share.

Diversified Instrumentation

The Index contracted 2.0% in December, with all companies trading in negative territory. AMETEK recorded the sharpest decline, falling 5.1%. Danaher, which contracted 3.6% for the month, reaffirmed its projected fourth quarter adjusted EPS range of $1.25–$1.29 on December 16, and estimated adjusted EPS of $4.80–$4.95 for 2016. Goldman downgraded Danaher from “Buy” to “Neutral,” and set a price target of $103. Goldman cited valuation concerns and limited upside potential to organic revenue growth estimates for 2016.

On December 1, Roper Technologies priced $600 million and $300 million senior unsecured notes offerings due in 2020 and 2025, respectively. The company also raised its quarterly dividend by 20% to $0.30 on December 17, yet shares slipped 1.9% for the month.

On December 17, JPMorgan downgraded Corning from “Overweight” to “Neutral” and cut its price target by 11% to $18 per share.

International

Asia Pacific equity indexes were mixed in December, as China’s Shanghai Composite advanced 2.7% for the month and Japan’s Nikkei 225 fell 3.6%. Prices for Pacific Region companies in the IBO Stock Table also diverged. Techcomp recorded the strongest price increase, advancing 5.0%, while GL Sciences fell 8.1%.

European equity markets all declined in December, including a 5.6% drop in Germany’s XETRA DAX. Despite a 1.8% decline in the London FTSE 100, UK-based companies in the IBO Stock Table traded mostly higher for the month. Abcam recorded the highest return, climbing 16.3%, while Horizon Discovery fell 6.6%. Prices for the other European companies in the IBO Stock Table were mixed. Sartorius advanced 27.5%, while Merck KGaA fell 7.6%.