Alere Inc. ALR is consistently executing on its strategy of divesting non-core assets. The strategy is not only helping the company to focus on its core rapid diagnostic test business but is also improving the cost structure and strengthening its balance sheet.
Alere’s recent divesture of Alere Analytics to Persivia is a part of this strategy. The deal follows the sale of Alere Health and its subsidiaries to Optum – the health services business unit of MN-based UnitedHealth Group UNH – for $600 million in early 2015. The company paid off debt worth $575.0 million from the proceeds.
Additionally, Alere sold off the Alere ACS unit – its health information exchange system – which accounted for around half of the company’s total expenses in Connected Health. Alere also sold 40% of its stake in Vedalab for roughly $10 million in the third quarter of 2014. The company also divested its vet business unit, Bionote, for around $45 million.
Proceeds from all these transactions were being used by the management to de-leverage the company. We note that Alere’s total debt was $3.71 billion as of Dec 31, 2014, which decreased from the year-ago figure of $3.82 billion.
Moreover, Alere’s operating margin expanded 190 bps on a year-over-year basis, primarily on the back of lower operating expenses. This suggested that the company’s cost control plans were working well. We feel the recent divestiture will further enhance the company’s ability to curb its operating expenses and generate solid bottom-line growth.
Additionally, we are impressed with Alere’s rapidly expanding product portfolio. The company received IVD CE marking for its Alere q HIV-1/2 Detect assay in Europe. It also received a Clinical Laboratory Improvement Amendments (CLIA) waiver for the Alere i Influenza A & B test. We feel new products will help Alere gain better market traction, going forward.
However, Alere faces significant vulnerability in its pain management business. This is a major downside, especially given that it is a high-margin business. An unfavorable foreign exchange rate is also a major headwind for the company.
Zacks Rank
Currently, Alere has a Zacks Rank #2 (Buy). Better-ranked medical stocks at the current moment include AMN Healthcare Services AHS and INC Research Holdings INCR. Both the stocks sport a Zacks Rank #1 (Strong Buy).
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