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Cepheid Posts Weak Q3 Preliminary Results, Shares Tank 14%

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Shares of molecular diagnostics provider CepheidCPHD slumped 14.2% in after-hours trading yesterday, following the release of bleak preliminary results for its upcoming third quarter and revised full year 2015 guidance.

Cepheid expects to deliver net loss per share of 32 cents in the third quarter, wider than the company's expected loss of 28-30 cents per share. On the top-line front, Cepheid expects to earn revenues of $126.5 million, which coincides with the company's earlier provided guidance of $125-$128 million. Currently, the Zacks Consensus Estimate of revenues is pegged at $128 million, higher than the company's expectation.

Moreover, excluding stock-based compensation expense of approximately $10.0 million, Cepheid expects to deliver adjusted loss per share of 32 cents, significantly wider than the company's earlier expectation in the range of 6-8 cents. According to management, the wider-than-expected adjusted loss can be attributed to a low gross margin of 46% (or adjusted gross margin of 48%) that Cepheid expects to incur in the third quarter.

The current Zacks Consensus Estimate of adjusted loss is pegged at 16 cents, which includes stock-based compensation.

Besides, the lower-than-expected gross margin renders disappointment. Contradictory factors like a higher proportion of lower-margin HBDC business and lesser-than-expected gains from commercial business were primarily responsible for the gross margin debacle at Cepheid.

Moreover, Cepheid incurred higher manufacturing costs related to increased volume of its latest virology tests. However, management points out that the company has already taken necessary steps such as exercising additional controls to enhance visibility into ramp-up costs associated with new product introductions in the future.

On a brighter note, Cepheid expects a sequential improvement in gross margin in the fourth quarter of 2015 and remains committed to its target of delivering adjusted gross margin of 60%, by 2017.

Further, considering the ongoing adoption of the GeneXpert System and Cepheid's preliminary financial outcome, the company currently expects to report total year-to-date revenue growth of 16%, including commercial clinical growth of 22%. On a constant currency basis, Cepheid expects to report total year-to-date revenue growth of 18%, including commercial clinical growth of 24%.

Moreover, Cepheid expects to report 376 GeneXpert Systems placements, including 35 in North America Commercial Clinical, 169 in International Commercial Clinical and 172 in HBDC, during the third quarter.

Full-Year Outlook

For full-year 2015, Cepheid currently estimates total revenue in the band of $537-$541 million, which indicates fourth quarter revenue expectation in the range of $146-$150 million. Incidentally, the said revenue figure is lower than the earlier declared range estimate of $544-$553 million. The Zacks Consensus Estimate of revenues for 2015 is pegged at $549 million, above the company-provided guided range.

Our Take

We are disappointed with the aforementioned preliminary results revealed by Cepheid. While on the bottom-line front, the company failed to meet its own expectations, the preliminary top-line figure missed the Zacks Consensus Estimate despite being well within the company's guided range. Lower gross margin and higher manufacturing costs on account of its new virology test weighed on Cepheid's performance in the third quarter. Nevertheless, going forward, we expect Cepheid's cost containment efforts will bear fruit and the company will witness positive gross margin improvement in the quarters ahead.

The final quarterly results are slated to be released on Oct 20, 2015.

Zacks Rank

Currently, Cepheid carries a Zacks Rank #2 (Buy). Some better-ranked medical instruments stocks are Cesca Therapeutics Inc. KOOL , Cyberonics Inc. CYBX and EDAP TMS SA EDAP . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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CEPHEID INC (CPHD): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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