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Bull of the Day: Quidel (QDEL)

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Quidel (QDEL - Free Report) is the $8 billion provider of rapid COVID-19 antigen tests that has analysts raising revenue estimates hand-over-fist this year to $1.65 billion, representing over 205% annual growth.

And profit projections have vaulted to OVER 530% annual growth -- 2020 EPS of $18.75 now makes the stock's P/E ratio trade under 11X -- after Quidel received Emergency Use Authorization (EUA) from the FDA to market its new combination "ABC" kit that tests for influenza A and B as well as COVID-19.

I last wrote about QDEL as the Bull of the Day in October, and I could just about update this story every 3 weeks because analysts just keep raising estimates, even as investors and analysts ignore it because they think that COVID testing is a one-off spike in sales and profits.

But in just the past few weeks since Q3 earnings in late October, even next year's growth estimates are making monster moves. In that report, Quidel delivered EPS of $5.78, beating the Zacks Consensus Estimate of $4.58 per share by a whopping 26% even after the company "warned" of massive revenues in advance.

Now, after discussions and presentations between Quidel management and Wall Street analysts, the current Zacks consensus among 4 investment banks is for 2021 revenues to grow over 93% to $3.2 billion.

And the Zacks EPS consensus has moved 10% higher to $39.45, representing 110% profit growth. That would put the forward P/E multiple at 5X. Absolutely unheard of for a medical diagnostics company.

These moves higher in estimates are largely a function of Quidel creating a game-changing "combo" test for influenza A, B, and COVID-19 that they cheekily call "ABC." This is a critical innovation as we enter the cold and flu season where hundreds of millions will have symptoms of "something" and need or want to get tested to be sure what it is.

COVID Testing and Its Discontents

The progress of companies like Pfizer (PFE - Free Report) and Moderna (MRNA - Free Report) with COVID-19 vaccines has been amazing and the scientific teams behind these advances deserve our gratitude and financial support. But the availability of the vaccines to more than 10% of the global population in the next 6 months seems remote.

And it doesn't mean we won't still need an abundance of rapid testing kits around the world. Some employers and institutions may require testing once a week and if air travel and restaurant dining are to return to normal in the next year, you can imagine the varying testing regimes that might be enforced.

This is an excerpt from what I wrote in that October report...

Here was reaction from William Blair analyst Brian Weinstein on October 5 after FDA approval for Quidel's newest "ABC" combo test, courtesy of TheFly.com...

Quidel emergency use news may be getting overlooked, says William Blair: Given the news cycle over the weekend with President Trump in the hospital, some "may have either missed the news, saw it but did not pay attention, or may not appreciate what this could mean for the company," William Blair analyst Brian Weinstein told investors in a research note after Quidel announced Friday night it had notice of FDA Emergency Use Authorization for its combo influenza plus SARS-CoV-2 antigen test.

Having a rapid antigen product that can simultaneously distinguish between influenza A, B, and COVID-19 is "value-creating for patients, clinicians, and the company as we are now in the 2020-2021 influenza season," said the analyst. Weinstein expects testing demand for such a test to be "robust, even if confirmed influenza cases are down."

Many people who would not ordinarily get tests and those who may just have seasonal respiratory viruses other than influenza will look for confirmation they have neither influenza nor COVID-19, said Weinstein. He expects Quidel's price for the product to be about a 50% higher than the stand-alone COVID-19 assay. The analyst keeps an Outperform rating on Quidel.

Other analysts who do "get it" include Piper Sandler's Steven Mah, who reacted to both the new test and the company's "warning" of massive revenues on October 2. Mah was pleased with Quidel's positive pre-announcement and recent wins with the Pac-12 and Big-10. COVID-19 testing will "remain durable for the coming years (even with a vaccine) and the market is large enough for multiple players," Mah told investors in a research note. He believes Quidel can capture $1.08B and $1.58B of COVID-19 revenue in 2020 and 2021, respectively, up from prior COVID-19 estimates of $650M and $1.15B. Mah reiterated his Overweight rating and $360 price target.

(end of excerpt from October report)

It seems the skeptics still abound as shares remain trapped near $200, when fair value could be $300 or higher.

An Overnight Success... Since 1979

In previous Bull of the Day articles 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.

Bottom line and disclosure: I would be a long-term buyer of QDEL near $200. I own shares of QDEL for both the TAZR Trader and Healthcare Innovators portfolios.

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