Morgan Stanley: Time To Buy Qiagen

• Qiagen NV QGEN shares have appreciated by 16 percent year-to-date, but have been under pressure since August 17, declining 3 percent.
• Morgan Stanley’s Steve Beuchaw initiated coverage of the company with an Overweight rating and a price target of $33.
• Although US HPV is currently overshadowing Qiagen’s business, Beuchaw believes that, with stabilizing trends, the company could beat the consensus organic growth forecasts.

Analyst Steve Beuchaw said, “Relationships with top oncology pharma companies and market leadership in genetic analysis software are evidence of the company’s positioning.” The analyst expects Qiagen’s organic growth to accelerate from 4 percent in 2015 to 10 percent in 2017, beating the consensus projection of 7 percent growth.

Qiagen’s underlying growth is overshadowed by US HPV, which is working against its organic growth. Qiagen’s ex-US HPV is growing 5-7 percent organically, while including HPV the company’s organic growth is merely 2-4 percent, Beuchaw pointed out.

Morgan Stanley noted, “Recent sequential revenue trends (down $2mn in 2Q15 vs -$9mn in 2Q14) suggest US HPV is stabilizing.”

Qiagen’s EBIT margins, excluding currency impact, are expanding by about 90bps per annum, despite revenue growth being less than 4 percent. The company’s revenue growth is expected to accelerate in 2016 and beyond, and this could result in faster margin expansion of 100bps, beating the consensus expectations, Beuchaw commented.

Qiagen has a higher margin profile than its peers, given its “high diagnostics consumables exposure” even rapid growth in sales and marketing expenses over the past four years.