Adjusting Hold-Rated Cepheid

Cepheid, Inc. (CPHD - Analyst Report) is a molecular diagnostics company that develops, manufactures, and markets fully-integrated systems for genetic analysis in the clinical molecular diagnostic, industrial and biothreat markets. The company announced its expansion in North America with licenses in Canada and registrations in Mexico, and the signing of another group purchasing contract with Novation.

The company is focused in driving growth primarily by penetrating further in the clinical market and launching new products. However, expansion efforts may prove more expensive than the company currently anticipates, and it may not succeed in increasing revenue to offset higher expenses. We maintain our Hold recommendation on the shares.

We previously increased our FY08 revenue and EPS estimates. Management previously increased its FY08 revenue guidance and provided detailed FY08 earnings guidance. For FY08, the company expects to be profitable excluding stock compensation and amortization of acquired intangibles.

At its current price of $29.56 per share, CPHD is trading at 8.7x our 2008 revenue estimate of $190 million, which is at a premium to the group multiple of rough 8.3x. At this stage, we believe most of the growth driven by the clinical market has been factored in the stock price. We believe CPHD is appropriately valued at a group premium of roughly 8.9x 2008 our revenue estimate. Our price target moves to $30.00.

Read the full analyst report on CPHD