Cepheid Tops Estimates

Cepheid (CPHD - Analyst Report) reported an adjusted EPS of 6 cents during the fourth quarter of fiscal 2011, a couple of cents ahead of the Zacks Consensus Estimate and higher than the adjusted EPS of 3 cents in the year-ago period. The adjusted EPS for the reported quarter takes into account, among other items, a charge of 8 cents per share associated with the termination of a patent license. This charge was anticipated in the company’s guidance for the quarter issued during third-quarter results.

For the current fiscal, the adjusted EPS came in at 15 cents surpassing the Zacks Consensus Estimate of 10 cents and turning around from the previous year’s loss of 7 cents per share.

Revenues during the quarter increased 36.4% year over year to $80.1 million, beating the Zacks Consensus Estimate of $73 million. The upside was driven by a 39% growth at the Clinical segment attributable to strong sales of reagents and systems. Cepheid’s higher bottom line owed much to revenue growth. For the fiscal, revenues increased 30.6% to $277.6 million, ahead of the Zacks Consensus Estimate of $270 million.

Among the different segments, the Clinical segment consisting of Clinical Systems (up 58% year over year to $19.9 million) and Clinical Reagents (up 33% to $49 million) contributed about 86% of the total sales during the quarter. Cepheid’s Non-Clinical business increased 19% year over year to $8 million. Product sales from North America and the international market recorded a respective year-over-year increase of 22% (to $53.6 million) and 89% (to $23.3 million).

Gross margin on product sales improved to 58% in the reported quarter compared with 55% in the year-ago period. Operating expenses amounted to $41.3 million, up 41.3% year over year, driven by higher research and development (42.7% annually to $16.6 million), sales and marketing (36.4% to $14.5 million), and general and administrative expenses (46.5% to $10.2 million). The company reported $9.7 million as income from operations (on an adjusted basis) compared with $6.6 million in the year-ago period.

Cepheid made a record placement of 175 GeneXpert systems in the quarter in its commercial business, taking the total number of systems placed during the year to 565. The company’s High Burden Developing Country ("HBDC") Program continues to gain traction with 181 system placements (141 in the third quarter and 38 in the second quarter).  Including the HBDC systems, a cumulative 2,843 systems have been placed worldwide as of December 31, 2011. At the end of the fiscal, cash and cash equivalents were $115 million, up from $79.5 million at the end of December 2010.

Outlook

Cepheid provided its outlook for 2012. The company expects to report revenues of $333–$347 million with EPS of 17−24 cents (adjusted EPS of 55−60 cents). The current Zacks Consensus Estimate of $333 million in revenues is at the low end of the company’s guidance.

Recommendation

The robust performance during the reported quarter was fired by the sharp growth in Clinical reagents. With a broad portfolio of tests, the company is one of the leading players in the healthcare associated infection (HAI) market. Cepheid is working on test menu expansion to further expand system placements. The stock retains a Zacks #2 Rank (Buy) in the short term.

Although we are encouraged by the strong system placements during the quarter amidst budget constraints in US and Europe, further deterioration in economic conditions might hamper the company’s growth. Besides, the competitive landscape is tough with the presence of players such as Myriad Genetics (MYGN - Analyst Report) and Qiagen (QGEN - Snapshot Report), among others. Longer term, we are Neutral on Cepheid.

Read the full analyst report on CPHD

Read the full analyst report on MYGN

Read the full analyst report on QGEN