On Nov 11, we issued an updated research report on molecular diagnostics company Cepheid (CPHD).
The company reported better-than-expected third-quarter 2014 financial results on Oct 16, 2014.
Adjusted loss per share of 6 cents in the quarter was narrower than the Zacks Consensus Estimate of a loss of 16 cents. However, the loss was significantly wider than the year-ago adjusted loss per share of a penny.
Revenues surged a solid 15.1% to $115.2 million, handily beating the Zacks Consensus Estimate of $110 million.
Moreover, the company has raised its revenue outlook for 2014. It now expects total revenue in the range of $461–$465 million, higher than the earlier range of $452–$461 million. However, Cepheid tightened the adjusted loss per share guidance to a range of 52–54 cents, as against the earlier loss per share expectation of 51–54 cents.
Cepheid serves a fast-growing molecular diagnostic market and holds a strong position therein buoyed by strong demand for its tests. The company has successfully expanded its market share overseas, with a particular strategic interest in the emerging markets of Asia and Latin America as well. Evidently, Cepheid has shipped 286 GeneXpert systems to High Burden Developing Countries (HBDC) in the last reported quarter. Currently, management believes that Cepheid is in a better position to develop its test menu expansion in Brazil. Meanwhile, its position in China is also improving.
To exploit its opportunity further in the international market, Cepheid launched a gamut of new tests, namely Xpert TV, Xpert FLU/RSV and Xpert Trichomonas, during the third quarter. These offerings contributed significantly to the robust 25% growth that was observed in Cepheid's commercial Xpert test revenues in the third quarter and are expected to be accretive in the coming quarters as well. Moreover, management remains confident that Cepheid will continue to experience impressive adoption and growing demand for both its new and existing Xpert tests.
At present, with more than 7,500 GeneXpert system placements and expected revenues approaching $0.5 billion a year, Cepheid targets at expanding its installed base, test menu, global footprint and technology lead. In our opinion, test menu expansion is a significant growth catalyst for this molecular diagnostic company.
However, a consistent tough competitive landscape for key products continues to pose challenges for Cepheid. Management expects that in the future, additional competitors will emerge offering a broad range of competing products that will require Cepheid, in turn, to develop new technologies to remain competitive in the long run. The stock currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Nonetheless, medical stocks such as AcadiaHealthcare Company, Inc. (ACHC), Alcobra Ltd. (ADHD)and Almost Family Inc. (AFAM) are expected to do well. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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