On May 9, 2013, we reaffirmed our long-term Neutral
) following strong first-quarter results. While the company
continues to record strong quarterly performance, its cautious
outlook for 2013 keeps us wondering whether Cepheid's business
model can keep the positive momentum going over the long haul.
The molecular diagnostics stock carries a Zacks Rank #3 (Hold).
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Why the Reiteration?
On Apr 18, 2013, Cepheid reported adjusted earnings per share
(EPS) of 2 cents, an improvement from the Zacks Consensus
Estimate of loss of 2 cents per share and loss of 10 cents in the
year-ago quarter. This marked the company's second consecutive
quarter of profitable growth.
Revenues surged 19% year over year to $91.9 million in the first
quarter, edging past the Zacks Consensus Estimate of $90 million.
Growth was led by the Healthcare Acquired Infections (HAI)
portfolio, Xpert Flu and Xpert CT/NG and ramp up in system
placements under High Burden Developing Country (HBDC) program.
However, the company was unable to meet the market demand for
Xpert Flu due to inadequate capacity utilization.
On the positive side, Cepheid returned to normal manufacturing
operations after addressing the underlying issues, which
negatively affected the financial results in the second half of
2012. We believe that the ongoing efforts on capacity expansion
should enable the company to meet the market demand for its
Cepheid's expectations from its Xpert CT/NG test are sky-high.
Despite customer wins from competitors in the quarter, the
competitive landscape for its key products remains tough.
The company's outlook for 2013 is another cause of concern.
Revenue forecast of $375-$385 million and EPS estimates of 1-7
cents reflects volatility in the HBDC program revenues due to
choppy system placement throughout 2012, contribution from newer
products like Xpert CT/NG and prolonged impact of order backlog
due to supply disruption in 2012.
Despite several upsides to drive growth, we remain on the
sidelines until we see signs of improved execution from Cepheid.
Nonetheless, other medical stocks such as
Intuitive Surgical Inc.
Heartware International Inc.
Natus Medical Inc.
) are expected to do well. These stocks carry a Zacks Rank #2