The share price of
) reached its 52-week high last month and has witnessed some profit
booking since then. Given its stretched valuation, we expect a
limited upside potential for the stock at present and hence we
revert back to Neutral with a target price of $40.00.
The veterinary market is a major contributor to the company's
top-line growth. Abaxis reported strong results in the first
quarter of fiscal 2013 (up 17% year over year) based on strength in
this market. Alongside, the company's new full-service laboratory
testing facility, Abaxis Veterinary Reference Laboratories (AVRL),
is complimenting the growth of the company's veterinary segment.
AVRL, in its third full quarter of operations, generated revenue of
$860,000 (up 83% sequentially).
Moreover, the company witnessed a consistent increase in Piccolo
placement. During the reported quarter, total revenue from the
medical market increased 18% year over supported by 48% increase in
Piccolo placement. The company is also working on getting
large-scale business for Piccolo. With various core marketing
programs being undertaken, Abaxis expects placement rates to
We also note that the company is taking initiatives to expand in
the international medical market. The recent contract with a
leading international biotechnology company to deliver 300 Piccolo
Xpress instruments is a big step in this regard.
However, we remain apprehensive about Abaxis' dependence on
distributors. Abaxis has had issues with its international
distributors in the past, which made it difficult to establish a
steady distribution network overseas. Thus, the failure to
successfully develop and maintain relationships with these
distributors could adversely affect the company's business.
We are also concerned about the bottom-line pressure faced by
Abaxis. In the reported quarter, the company incurred legal expense
of $850,000primarily related to a patent infringement case against
) with respect to Cepheid's Methicillin-resistant Staphylococcus
aureus("MRSA") product, on which Cepheid has ceased paying license
royalties. The situation could further deteriorate for Abaxis if
these issues are not resolved in the near future.
Notably, in 2005, Abaxis and Cepheid entered into a royalty
license agreement for certain patents related to lyophilization
technology under which Cepheid introduced a manufacturing process
outside the scope of Abaxis patents.
Besides, the presence of many big players like
Idexx Laboratories Inc.
) that have greater resources has made the human and veterinary
diagnostic market highly competitive.
Last week Alere reported its second quarter 2012 adjusted EPS of
42 cents, trailing the corresponding Zacks Consensus Estimate of 50
cents. Net revenues came in at $700.5 million in the reported
quarter, up 23.5% year over year, easily surpassing the Zacks
Consensus Estimate of $654 million. Idexx Laboratories announced
its second quarter 2012 results on July 20, 2012. The company
reported a 10% year over year increase in EPS to 91 cents on
revenues of $335.6 million (up 6% year over year).
Abaxis on the other handreported an EPS of just 13 cents in the
first quarter of fiscal 2013, which missed the Zacks Consensus
Estimate by 4 cents or 23.5% (although the 30% increase from last
year was encouraging).
Revenues during the quarter increased 17% year over year to
$42.0 million, and surpassed the Zacks Consensus Estimate of $40
million. The growth was based on higher sales in both North America
(up 12% to $33.2 million) and in the international market (up 41%
to $8.8 million).
The company has not provided any outlook for the upcoming
period. However, the Zacks Consensus revenue and EPS estimates for
the second quarter of fiscal 2013 remain at $45 million and 19
Abaxis currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating.
ABAXIS INC (ABAX): Free Stock Analysis Report
ALERE INC (ALR): Free Stock Analysis Report
CEPHEID INC (CPHD): Free Stock Analysis Report
IDEXX LABS INC (IDXX): Free Stock Analysis
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