Cepheid: Updated Research Report - Analyst Blog

Recently, we issued an updated research report on Cepheid CPHD. The company reported a better-than-expected first-quarter 2014 with loss narrower than the Zacks Consensus Estimate and revenues steering ahead of the mark. Moreover, an improved bottom-line guidance for 2014 makes us confident about Cepheid's business model that promises to retain the positive momentum over the long haul.

Revenues surged 16.3% to $106.9 million, ahead of the Zacks Consensus Estimate of $105 million. However, the company's loss per share of 10 cents in the last reported quarter, although narrower than the Zacks Consensus Estimate of a loss of 19 cents, was substantially lower than the year-ago earnings per share of 2 cents.

Despite this, the company posted a decent outlook for 2014. It expects total revenue in the range of $446–$461 million. The Zacks Consensus Estimate of $457 million falls closer to the higher end of the guidance range. However, Cepheid anticipates adjusted net income in the range of 19 cents–24 cents per share, lower than the earlier expectation of 24–29 cents. The current Zacks Consensus Estimate of loss 40 cents per share remains far below the expected range.

Cepheid serves a fast-growing molecular diagnostic market with strong demand for its tests. We believe that the ongoing efforts for capacity expansion should enable the company to meet the market demand for its offerings. The company expects to launch a gamut of tests in the U.S. as well as the overseas market by the end of 2017. In our opinion, test menu expansion is a significant growth catalyst for this molecular diagnostic company.

The company's quarterly top-line performance generates optimism. The year-over-year revenue improvement came on the back of strong market adoption of GeneXpert Systems and broadening reach of the Xpert test portfolio. Growth was also driven by strong business in High Burden Developing Countries (HBDCs) and improved performance in the commercial clinical business.

Margin pressure however still remains an area of concern on account of unfavorable mix toward the lower-margin HBDC business. Also, a difficult capital spending environment continues to pose challenges for Cepheid. The stock currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Nonetheless, medical instruments stocks such as Natus Medical Inc. BABY, Edwards Lifesciences Corp. EW and Masimo Corporation MASI are expected to do well. All the three stocks carry a Zacks Rank #2 (Buy).

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