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On Jun 26, we upgraded genetic devices maker Affymetrix Inc. (AFFX - Analyst Report) to Neutral from Underperform, as we believe that the company has reasonable upside potential going forward, despite disappointing first-quarter results.

Why the Upgrade?

Affymetrix posted first-quarter 2013 adjusted loss per share of 1 cent, wider than the Zacks Consensus Estimate of break-even earnings. However, it was narrower than the year-ago adjusted loss per share of 3 cents. Revenues increased 19.5% (including the eBioscience acquisition) year over year to $77.9 million but were 4.9%.lower than the Zacks Consensus Estimate of $82 million.

Following the release of the first-quarter results, the Zacks Consensus Estimate for 2013 declined to a loss of 1 cent per share from earnings of 5 cents per share. Moreover, the Zacks Consensus Estimate of a loss for 2014 has also declined (down 50% to 6 cents per share) significantly.

However, we believe that Affymetrix is ready for a turn around and the worst days are over for the company. In the face of declining demand for Affymetrix’ flagship GeneChip Expression products, management’s strategy to transform into a company with a broad reach in the high-growth markets for translational medicine, molecular diagnostics and applied markets is encouraging.

New products, acquisitions, strategic agreements should propel growth going forward. Additionally, the company’s restructuring and debt reduction efforts should boost margins and profitability.

Meanwhile, we are aware of the fact that Affymetrix faces intense competition and pricing pressure across its core markets and is exposed to tight global academic spending environment. Hence, we choose to remain on the sidelines regarding Affymetrix, as evidenced by its Zacks Rank #3 (Hold).

Other Stocks to Consider

Other stocks in the Medical-Biomed/Gene industry that are currently performing well include Biogen Idec (BIIB - Analyst Report), Targacept (TRGT - Snapshot Report) and Protalix BioTherapeutics (PLX - Snapshot Report). All these companies carry a Zacks  Rank #1 (Strong Buy).

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