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Bear of the Day: Quidel (QDEL)

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Quidel (QDEL - Free Report) is a $5 billion maker of medical diagnostics that vaulted to unprecedented success during the height of demand for COVID-19 testing kits.

Quidel discovers, develops, manufactures and markets point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses. These products provide accurate, rapid and cost-effective diagnostic information for acute and chronic conditions that affect women's health throughout the phases of their lives including reproductive status, pregnancy management and osteoporosis.

Quidel also provides point-of-care diagnostics for infectious diseases, including influenza A and B, strep throat, H. pylori infection, chlamydia and infectious mononucleosis.

Sales vaulted over $1 billion -- nearly 200% -- last year for their rapid COVID-19 test.

And I was one investor who was captivated by the story, believing that not only would such testing demand persist but also that the new influx of cash flow would enable this small company to expand many of its R&D and product avenues in diagnostics.

In fact, we took gains of 64% and 48% in the past few quarters riding the wave of demand for testing, and buying the dips when others doubted the sustainability of those sales.

But the fable would not last. And as much as I wanted to believe in the $5 billion company sustaining a new valuation above $10 billion, the revenue growth disappointments from the company and the downward estimate revisions from analysts kept coming in.

In the past few months, the EPS consensus among four Wall Street analysts covering the company has dropped 33% from $39 to $26.

And that's why QDEL is in the cellar of the Zacks Rank.

Here's what I told my followers as we let go of our last QDEL shares last week...

We had some nice winners here of +64% and +48%, and I really believed the innovator could become a $10+ billion powerhouse in diagnostics, or a prime take-over candidate. So I thought the sellers were wrong and setting up another big asymmetric win for us.

But now we retreat as the company's weak pre-announce kills the bull case...

Quidel price target lowered to $140 from $265 at Piper Sandler: Analyst Steven Mah kept his Overweight rating on QDEL after the company preannounced Q1 revenue of $374-$376 million, well below consensus of $466M, and guidance from March 10 of at least $450M.

The miss was driven by a continued lack of reorders of COVID-19 tests due to overstocking in Q4. Mah came away "disappointed with management continuing to count their chickens before they hatch" by including large events into guidance commentary despite limited visibility.

Bottom line: QDEL remains a diagnostics innovator to watch, especially with their rapid, massive, proven response to COVID-19 testing demand. While JPMorgan has a price target of $90, I might consider being a buyer before then if the estimates picture turns around. The Zacks Rank will let you know.

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