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Bull of the Day: Quidel (QDEL)

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I last wrote about Quidel (QDEL - Free Report) as the Bull of the Day in late June as lots of good fundamental news put this medical diagnostics innovator on my radar. Here's what I wrote then...

Quidel is an $8 billion provider of point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses and they have multiple new COVID-19 tests that have received FDA expedited emergency use authorization (EUA) in the past six weeks.
Combined with CEO Douglas Bryant buying 5,000 shares of his company on June 11th, all this good news saw QDEL jump 18% on June 15 and subsequently go on to new highs above $215. 
The insider buy transaction was worth a little over $800,000 implying a price in the low $160s. And other investors were happy to join him as EPS estimates have skyrocketed 150% in the last few weeks with the 2020 consensus going from $3.06 to $7.56.
And next year's EPS consensus launched from $3.40 to $8.68.

(end of excerpt from June 26 report)

Since then, two trends have continued and a new one has emerged. The continuing trends have been a soaring stock price and soaring EPS estimates.

This year's consensus vaulted nearly 40% to $10.55, representing an astounding 255% growth advance, and next year's exploded 59% to $13.68, for a still-stunning 31% advance. The bulk of these upward spikes in estimates came after the company's Q2 report on July 30. More on that coming up.

The new trend is that analysts are finally catching on to Quidel's growth story. And it certainly helped that the company gave them a heads-up in early July with a pre-announcement of their coming Q2 report.

On July 6, Quidel reported preliminary Q2 revenue of $201-$202 million vs. consensus expectations of just $179M.

Douglas Bryant, president and CEO of Quidel, said in a company statement "Our second quarter was even stronger than we had expected, driven by demand for our COVID-19 Molecular Diagnostics and Rapid Immunoassay products.

"With the rapid development, EUA clearance, and production of over 3 million Lyra(R) SARS-CoV-2 and Lyra(R) Direct SARS-CoV-2 assays, Quidel played a small, but important role in helping our high complexity lab customers with their SARS-2 PCR testing needs.

"Later in the quarter, we completed the development of Sofia SARS Antigen, gained EUA clearance, and manufactured almost 4 million Sofia SARS Antigen cassettes in the quarter. In the month of June, we also shipped approximately 1,500 Sofia instruments, bringing the cumulative total to approximately 45,000 Sofia placements globally, 90% of which are in the U.S."

Following this news, a couple of analysts jumped into action with these calls...

Craig-Hallum analyst Alexander Nowak raised the firm's price target on Quidel to $306 from $170. The analyst recognized Quidel as "a momentum stock that still has plenty of momentum left," as cash flow generation, retail partnerships and a combined COVID/flu panel all still to come.

Piper Sandler analyst Steven Mah raised his price target on Quidel to $250 from $168. Quidel has "opportunistically shifted" to COVID-19 testing, and the company could capture $252M and $327M of COVID-19 testing revenue in 2020 and 2021, respectively, Mah told investors in a research note. Beyond COVID-19, Mah thinks the Savanna and Sniffles launches can "substantially contribute" to growth longer term. Savanna is being developed as a low-cost, fully-integrated "sample-to-answer" molecular diagnostic system.

June Quarter Knocks it Out

On July 30, Quidel reported Q2 adjusted EPS of $1.86 vs. the consensus of $1.12, for a 66% beat. Revenue of $201.8M beat the consensus (prior to the July 6 preannounce) by nearly $12 million, or 6.3%.

CEO Bryant commented "Our strong second quarter results were driven by significant demand for COVID-19 diagnostic products, and reflected our organization's ability to quickly develop and scale diagnostic products that are making a difference in people's lives. In the quarter, we also made excellent progress on our product pipeline and on our sourcing and manufacturing capacity initiatives. As a point-of-care diagnostics leader, we are proud to expand access to affordable testing, and provide answers to some of the most vulnerable."

This report sent the analysts back to their spreadsheet models and produced further new Wall Street-high price targets...

Craig-Hallum's Nowak boosted his price target on Quidel to $363 from $306 following the company's strong results. Nowak noted that the Q2 conference call demonstrated the massive demand for Quidel's COVID tests and the positive effect it is having on margins and profitability.

Piper Sandler's Mah ramped the firm's price target on Quidel to $360 from $250 following the company's Q2 beat. Quidel has "quickly and efficiently" scaled its COVID-19 business, with demand "massively higher" than anticipated, Mah said.

Analysts have also been scrambling to raise their sales and EPS estimates since the report. Before the company's Q2 results, the 2020 EPS consensus stood at just $8.05, and so it was this report that convinced analysts of the true magnitude of earnings momentum for Quidel, sparking their 31% boost to $10.55.

And next year's consensus EPS of $13.82 sat at only $9.40 prior to the company report, highlighting the reaction of the Craig-Hallum analyst who observed "massive demand" for Quidel's COVID tests and the positive effect it is having on margins and profitability.

Those surging profits are certainly nice. But it will be the sales growth that keeps institutional investors very interested, as Quidel is expected to post a 114% advance to $1.14 billion this year.

Next year's revenue consensus calls for nearly 26% growth to $1.44 billion. I expect those 2021 estimates to keep climbing on both the top and bottom lines.

An Overnight Success... Since 1979

In my previous Bull of the Day article for Quidel, I highlighted several of the recent FDA approvals and EUA's -- including over $600 million in Biomedical Advanced Research and Development Authority (BARDA) funding -- which have put the company on the map as a player among giants like Abbott, Danaher, Roche and Thermo Fisher Scientific in coronavirus testing and medical diagnostics in general.

I suggested at the time that QDEL could easily be an M&A target for such firms under a $10 billion market cap. But, now I suspect management has their own designs about who and what they want to become. After all, they've been at this a while too as this paragraph from the company website explains...

Quidel began operations in 1979 and launched its first products in 1983, as well as the world’s first rapid diagnostic test for Influenza A/B in 1999. Since that time, Quidel has experienced double-digit growth and expanded its market reach through internal product development as well as through acquisition, with a focus on investment in research and development to accelerate the rate of new product introductions.

Continuing their innovation and commercial reach, I expect to see more good news like this every quarter. Here was a release on July 31...

Quidel enters preliminary letter contract with NIH through RADx-ATP initiative

Quidel Corporation announced that the Company has entered into a preliminary letter contract with the National Institutes of Health through its newly launched Rapid Acceleration of Diagnostics - Advanced Technology Platforms (RADx-ATP) initiative to support the expansion of its manufacturing capacity in San Diego for its diagnostic assays that test for SARS-CoV-2 Antigen using its Sofia Fluorescence Immunoassay platform. Quidel and the NIH endeavor to enter into a definitive agreement to support the initiative by mid-September.

Bottom line on QDEL: I would be a long-term investor here starting positions between $225 and $250.

Disclosure: I own QDEL for the Zacks Healthcare Innovators portfolio.

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