) reported selected results for fourth quarter of 2012 based on
preliminary analysis. The molecular diagnostic company also
provided updates on the ongoing manufacturing issues and Xpert
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Elementary Results for the Fourth Quarter
Cepheid currently expects revenues of about $92 million in the
fourth quarter, up approximately 12.5% year over year. Growth was
led by higher-than-expected revenues from commercial clinical
reagents. However, it trails the company's guidance as well as
the current Zacks Consensus Estimate of $94 million.
Cepheid envisages commercial clinical revenues to be around $72
million, higher than the prior outlook of approximately $69
million. Commercial clinical revenues were primarily driven by
higher sales of Xpert Flu, Xpert MRSA and Xpert C.difficile as
these offerings accounted for 30% normalized growth on a
year-over-year basis. Moreover, placements of 59 GeneXpert
systems in North America (accounting for lion's share of
Cepheid's revenues) are expected in the quarter under review.
Clinical revenues from High Burden Developing Country (HBDC)
program is expected to be in the neighborhood of $10 million,
lower than the company's forecast of $16 million. Cepheid failed
to meet its own expectations due to choppy system placements in
target countries and supply lag in the overseas operations.
However, management expects to turn the tables in the first
quarter of 2013.
As announced earlier, Cepheid expected adjusted commercial gross
margin to be marginally above 60% and after considering HBDC
business, the company targeted adjusted gross margin in the
51−52% range. Given the fact that Cepheid's commercial clinical
business is a high gross margin division relative to HBDC
revenues, we expect Cepheid to achieve the target for gross
margin for the fourth quarter.
Earlier, the company envisaged loss per share in the band of 1
cent and 3 cents on a GAAP basis and adjusted earnings in the
band of 10 cents and 12 cents for the fourth quarter. Based on
the preliminary analysis, Cepheid expects to surpass the high end
of its earlier guidance for earnings. The current Zacks Consensus
Estimate for the fourth quarter is loss of 2 cents.
As Cepheid faces a higher-than-expected demand for its Xpert
tests for the fourth quarter, the company's constant efforts to
address manufacturing concerns is likely to pay off. The company
disclosed that it is closer to returning to normal manufacturing
operations after addressing the underlying issues, which
negatively affected the financial results in the second half of
Cepheid expanded its capacity by setting up another Reagent on
Board Automation Line (ROBAL) in Sunnyvale. The company is also
set to round off its second ROBAL line at its manufacturing
facility in Sweden and initiate related functions in the second
half of 2013.
These initiatives are expected to yield positive results for
Cepheid as the demand for Xpert offerings, mainly Xpert MRSA and
Xpert Flu, continue to surge. While we believe that the
disruption in the company's manufacturing operations was
temporary and waning, Cepheid's efforts and management commentary
encourage our confidence.
With a lukewarm end to 2012 for Cepheid, we look forward to 2013
with full optimism as the current headwinds take a backseat. The
company has several catalysts to support long-term growth. We
currently have a long-term Neutral recommendation on Cepheid. The
stock carries a Zacks Rank #2 (Buy). Other medical sector stocks
carrying a Zacks Rank #2 are
MAKO Surgical Corp.