We recently reiterated our Neutral recommendation on
) with a target price of $38.00.
The company reported a mixed second quarter. Its adjusted
earnings per share ("EPS") of 3 cents surpassed the Zacks Consensus
Estimate by a penny while revenues of $81 million fell short of the
$83 million expectation.
System placements remain strong as Cepheid expands its test menu
and enters into strategic partnerships to support distribution. In
the reported quarter, the company placed 133 GeneXpert systems in
its commercial business that included 54 systems in North America
(including 7 Infinity systems) and 79 in the international market.
Revenues from clinical systems (including the HBDC business)
increased 5% year over year and 11% on a sequential basis to $14
With revenues from High Burden Developing Countries
("HBDC") being flat, the growth was almost entirely associated with
the commercial business. The company witnessed growth despite the
persistent economic uncertainty in Europe and renewed concerns in
the US regarding the potential impact of healthcare reforms.
Apart from menu expansion, Cepheid is also looking to expand its
market reach in both the US and international markets. The company,
with its decision to go direct in Germany in the first quarter,
placed 15 systems in Germany to support the National Infection
Control mandate that was effective from March, 2012. Cepheid has
witnessed outright purchases rather than reagent rentals, and is
thereby targeting the regions of UK, France, South Africa and the
Benelux on a direct basis. While the situation in southern Europe
continues to remain challenging, the outlook is promising for the
north. Although the international market emphasis is in its initial
stages, it represents tremendous opportunities.
Cepheid has continuously worked on expanding its portfolio of
tests. Although the company is one of the leading players in the
HAI segment, it has also been successful in the non-HAI markets.
This includes critical infectious diseases, women's health,
virology and oncology and genetics. Several tests are under
development and the company is looking forward to introducing the
tests in each of these markets over the next few years. This is
significant as the market is highly competitive with the presence
of players such as
), among others.
However, revenues associated with the HBDC business during the
reported quarter were lower than the company's expectations. With
the agreement in place to bring down the price of the Xpert MTB/RIF
test in August, the first few quarters will record negative gross
margin from HBDC sales as accounted. In addition, Cepheid had to
lower its EPS guidance to reflect changes in its outlook for gross
margin for the HBDC business and a less favorable currency
movement. Moreover, operating expenses are on the rise to support
various developmental programs.
Our longer-term Neutral recommendation is backed by a Zacks #3
Rank (hold) in the short term.
CEPHEID INC (CPHD): Free Stock Analysis Report
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