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Bull of the Day: Meridian Bioscience (VIVO)

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Meridian Bioscience (VIVO - Free Report) is a $1 billion provider of diagnostic test kits for gastrointestinal and respiratory infectious diseases. The company is expected to grow sales 28.6% this year to $326 million.

And after reporting a strong beat-and-raise quarter in early February, analysts had to boost their EPS estimates for FY21 (ends September) over 30% from $1.24 to $1.66. Since I last wrote about this 55% rise in profits -- and a spike in VIVO shares above $30 -- the company had a bit of a hiccup with an FDA approval of their latest COVID-19 testing kit.

So I wanted to update investors and followers of the company on what's happening. On February 16, Meridian revealed that the FDA requested additional information on the SARS-CoV-2 molecular diagnostic test on its Revogene platform, for which the company was seeking Emergency Use Authorization (EUA).

At the time, Meridian elected to place shipments of the SARS-CoV-2 test kits on hold while it continued to work with the FDA. This news sent shares down sharply over the next two weeks, exacerbated by the broad pullback in Nasdaq and Biotech stocks.

Since I hold VIVO shares in my Healthcare Innovators portfolio for long-term returns, I often take advantage of over-reactions like this in my TAZR trading portfolio, like we did with Novavax (NVAX - Free Report) this month to capture a 40% gain in just ten trading days, buying under $160 and letting go above $220.

VIVO at $21 Again -- What a Gift!

But I missed the great opportunities in VIVO down at $21. I should have been paying more attention and listening to one of the biggest Street bulls on VIVO and other diagnostic companies, Steven Mah of Piper Sandler, who put the FDA delay in better perspective.

On February 23, Sandler analyst Mah maintained his Overweight rating on Meridian Bioscience with a $34 price target after the company elected to withdraw its EUA application for its SARS-CoV-2 test on Revogene. He explained how, based on discussions with the FDA, Meridian intends to conduct a new clinical validation study from now to the end of March.

Mah had conservatively modeled only $500,000 in COVID-19 revenue in the current quarter and $5 million total for fiscal 2021, so his estimates were not greatly affected by the slight downward revisions he thinks he might have to make after this quarter. Mah still expects that COVID-19 testing will be a durable revenue source through 2022.

On February 24, another positive analyst, Yi Chen from H.C. Wainwright, lowered the firm's price target on VIVO to $32 from $34 while reiterating a Buy rating on the shares after the FDA requested additional studies for Revogene EUA resubmission. Chen acknowledged that this temporary setback in EUA application and the commercial launch of Revogene SARS-CoV-2 molecular assay may delay the resumption of growth in the Diagnostics segment.

But, with shares falling back to $21, the analyst felt that overall growth rates in the combined business segments justified a higher valuation for such a small player trading at only 3 times sales.

Ready for Bargains During Corrections

I wrote about VIVO in early January and said it wasn't too late for investors to grab hold of this profit rocket near $20 per share...

"Bottom line on VIVO: I always pay attention to small companies growing their sales rapidly as they could become acquisition targets by larger biopharma or MedTech players. Buying VIVO near $20 offers excellent risk/reward, with or without an M&A suitor."

And then in early Feb, right before the company report, I produced a video and article where I talked about why the COVID-19 testing stocks were under-appreciated given their fantastic growth...

Biotech Bonanza: COVID Launches Science at Warp Speed

Well, we just got another shot at $20 so I hope you were paying better attention than me! Looks like I made this recent vlog more for myself than anyone else...

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Meridian Under the Microscope

Meridian Bioscience develops, manufactures, distributes, and sells diagnostic test kits primarily for gastrointestinal and respiratory infectious diseases, and elevated blood lead levels worldwide. The company operates through Diagnostics and Life Science segments. They describe their mission as helping providers make better diagnostic decisions with a focus on gastrointestinal, neonatal, pediatrics, and respiratory conditions.

The Diagnostics segment offers testing platforms, including real-time PCR (polymerase chain reaction) amplification under the Revogene brand; isothermal DNA amplification under the Alethia brand; lateral flow immunoassay using fluorescent chemistry under the Curian brand; rapid immunoassay under the ImmunoCard and ImmunoCard STAT! brands; enzyme-linked immunoassays under the PREMIER brand; anodic stripping voltammetry under the LeadCare and PediaStat brands; and urea breath testing for H. pylori under the BreathID brand.

Diagnostic Players Find New Life Under COVID

I have written often in the past few months of specialized diagnostic companies like Quidel (QDEL - Free Report) and Hologic (HOLX - Free Report) as they build new revenue streams from SARS-CoV-2 testing. These revenue streams are likely sustainable as the virus mutates and requires modified tests.

And I recently bought shares of VIVO for the Zacks Healthcare Innovators portfolio because I liked the growth outlook for this small player in a rapidly expanding market for rapid diagnostics -- including coronavirus testing which will continue to be part of our lives for years to come, even with vaccines.

While Meridian Bioscience is a David among diagnostic Goliaths, its long and fascinating history surprised me. From the company website...

In 1977, Bill Motto founded Meridian Bioscience on a $500 investment in his Cincinnati home’s basement. Meridian’s first product was distributing a rapid fungal test developed by the University of Kentucky. While calling on his hospital and research customers, Bill noticed there was no easy, clean way to transport patient samples. He developed the innovative Para-Pak stool transport system to meet this need.

As the product line grew, so did Meridian’s research and development, leading to a breakthrough in 1982 with a 10-minute rapid test for strep throat. Before the Meridian test, doctors would have to wait for two to three days for a culture result. Innovation continued as the company brought several cutting edge diagnostic technologies to market, including a DNA testing platform and first-of-their-kind tests for C. difficile, E. coli, H. pylori amongst others.

The new bottom line on VIVO: I continue to hold the shares and would recommend new positions between $23 and $26 looking for new bull market highs above $32 by June.

Disclosure: I own shares of QDEL, HOLX, NVAX and VIVO for the Zacks Healthcare Innovators portfolio.

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