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On Aug 29, Zacks Investment Research upgraded genetic devices maker Affymetrix (AFFX - Analyst Report) to Outperform, based on its improved prospects. This leading provider of microarray-based products and services to the global research community achieved a Zacks #1 Rank (Strong Buy) for its stock, shortly after reporting impressive second quarter results.

Why the Upgrade?

Affymetrix reported earnings for the first time since the first quarter of 2011. Adjusted earnings of $0.04 beat the Zacks Consensus Estimate by a whopping 500% and surpassed the year-ago loss of 13 cents per share. The company’s restructuring plan to shift focus toward high growth markets is finally paying off, as demonstrated by the bottom line growth in the quarter.

Revenues grew 19.7% to $79.5 million, almost in line with the Zacks Consensus Estimate. Over the past four quarters, Onyx Pharma has delivered an average surprise of 262.50%. Strong revenues from genotyping and cytogenetics products along with moderate contribution from eBioscience have offset weak gene expression array sales.

Following the release of the second quarter results, the Zacks Consensus Estimate for 2013 earnings has gone up by 9 cents, from a loss of 1 cent, settling at 8 cents per share. Moreover, the Zacks Consensus Estimate for 2014 has also more than doubled to 15 cents per share from 6 cents.

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

Despite a tight academic funding environment, new products, acquisitions, and accretive agreements, along with restructuring activities, should propel growth. Additionally, the company’s debt reduction efforts are also strengthening its balance sheet.

Other Stocks to Consider

Besides Affymetrix, other companies like Biogen Idec (BIIB - Analyst Report), Gilead Sciences (GILD - Analyst Report) and Actelion (ALIOF), all carrying a Zacks Rank #1 (Strong Buy), are also expected to do well in the Medical-Biomed/Gene industry.

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