Cepheid
(
CPHD
) reported robust growth in revenues in the first quarter of fiscal
2012, which were in line with the Zacks Consensus Estimate.
However, the company reported adjusted loss per share of 10 cents,
much wider than the Zacks Consensus Estimate of a loss of 2 cents
and worse than adjusted earnings of 2 cents per share in the
corresponding year-ago period.
Cepheid's bottom line was adversely affected by escalating costs
due to a scaling up of manufacturing operations (in Sweden and
Sunnyvale), higher Group Purchasing Organization fees and
higher-than-expected freight costs, especially in the international
market. Consequently, gross margin of 54% was well behind the 57%
guidance and the year-ago quarter's 58%.
The company is implementing certain additional processes (with
regard to scaling up of operations), which could impact gross
margin in the second quarter by 100 basis points. Besides, R&D
expenses were higher due to completion of the CT/NG trial ahead of
schedule. Accounting for the challenges of the first quarter and
the anticipated follow-on impact in the second quarter, the
earnings per share guidance for the fiscal was lowered to 12−17
cents from the previous band of 17−24 cents while the revenue
outlook remained unchanged. Consequently, we prefer to go back to
our Neutral recommendation for Cepheid.
Though the near-term margin scenario is a cause of legitimate
concern, sales of reagents were strong during the first quarter on
the back of a growing installed base of GeneXpert systems and an
expanded test menu. The company placed 122 GeneXpert systems in the
first quarter in its commercial business (within the company's
targeted range) and 151 systems as part of the HBDC (High Burden
Developing Countries) program. This is well below the 175
placements made in the fourth quarter of the previous year. The
first quarter is generally weak as far as system placements are
concerned. The company is also working on launching tests in the
areas of critical infectious diseases, women's health, virology and
oncology and genetics. This is significant as the competitive
landscape becomes tough with the presence of players such as
Myriad Genetics
(
MYGN
) and
Genomic Health
(
GHDX
), among others.
Besides extending its menu, Cepheid is also looking towards
expanding its market reach both in the U.S. and internationally.
Since the company records only 20% of its clinical revenues from
outside the US, it has a sizeable, untapped market potential
overseas. The company has already acquired distributors in
South Africa and Germany. Germany presents the largest revenue
opportunity in Europe, given its upcoming infection control
mandate. The company has established its operation in China and
Japan and is working on securing regulatory approval for certain
Xpert products there, with scheduled launch by the year end.
Our Neutral recommendation is backed by a Zacks #3 Rank (hold)
in the short term.
CEPHEID INC (CPHD): Free Stock Analysis Report
GENOMIC HEALTH (GHDX): Free Stock Analysis
Report
MYRIAD GENETICS (MYGN): Free Stock Analysis
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