On Feb 5, 2013, we reaffirmed our Neutral recommendation on
) following the fourth quarter 2012 results. While the return to
profitability in the most recent quarter was encouraging, we
believe that the company's progress to tackle near-term headwinds
has been stubbornly slow.
Why the Reiteration?
Cepheid reported adjusted earnings per share of 11 cents in the
fourth quarter on Jan 24, better than the Zacks Consensus
Estimate of break-even earnings per share and 6 cents per share
in the year-ago quarter. Revenues surged 15.4% year over year to
$92.4 million trailing the Zacks Consensus Estimate of $94
Growth was single handedly led by the commercial clinical
franchise as system placements under High Burden Developing
Countries (HBDC) remained choppy. Cepheid should benefit from
soaring demand for its offerings. While the demand for Xpert MRSA
continues to surge, the company is currently focused to meet the
higher demand for its Xpert Flu test due to a burdensome flu
season. Also worth mentioning in this context is that Xpert CT/NG
tests is expected to be a major catalyst for 2013.
The company is set on a growth trajectory as the molecular
diagnostic wing is the fastest growing segment of the healthcare
industry. Going forward, Cepheid should gain from normal
manufacturing operations after addressing the underlying issues,
which negatively affected the financial results in the second
half of 2012. Moreover, it plans to triple its production
capacity in 2013.
While the company is better positioned for execution in 2013, the
disappointing outlook failed to meet the Zacks Consensus Estimate
reflecting volatility in HBDC program revenues due to choppy
system placements. Adding to Cepheid's woes, the capital spending
environment in the domestic market remains unyielding.
Other Stocks to Consider
With the gloomy prediction for 2013, we are wondering whether
Cepheid's business model can keep the positive momentum going.
The estimate revision trend also reflects that the stock is
presently out of favor. Accordingly, the stock carries a Zacks
Rank #3 (Hold). While we remain on the sidelines for this
molecular diagnostic company, medical stocks like
) are expected to do well and warrant a look.
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