Fair Value for Home Diagnostics

As management suggested earlier, Home Diagnostics, Inc. (HDIX - Snapshot Report) negotiated a new exclusive co-branding agreement with Rite Aid Corporation (RAD - Analyst Report), which should help second-half 2008 volumes. However, we believe the company’s strategy of providing low-cost blood glucose systems under this co-branding plan will likely affect its future pricing and margin capabilities. Customer consolidation could also reduce the growth outlook.

Also, we expect increased competition from Johnson and Johnson (JNJ - Analyst Report) and Medtronic, Inc. (MDT - Analyst Report) will likely pressure the top- and bottom-lines in 2008. The company is expected to report fourth quarter results before the markets open on March 13th.

Given the risk factors and low growth outlook, we believe the company should trade at a discount to comparables. At a 20%-30% discount to the group average 1.5x 2008 P/E/G, we believe HDIX is fairly valued at $8.50. Our rating on the stock is Hold.

Read the full analyst report on HDIX.

Read the full analyst report on RAD.

Read the full analyst report on JNJ.

Read the full analyst report on MDT.