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Abaxis Upgraded to Outperform

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We have recently upgraded our recommendation for Abaxis Inc. (ABAX - Free Report) , a portable Medical (human) and Veterinary (animal) blood analysis system developer, to Outperform from Neutral, primarily based on its strong future growth prospects.

Over the last few quarters, Abaxis has consistently delivered strong results through balanced sales growth worldwide. In the last reported quarter, total sales increased a robust 14% year over year to $42.7 million and EPS rose 40% year over year to 21 cents, both handsomely ahead of the Zacks Consensus Estimates.

The upside in revenues were primarily attributable to robust growth in both North America (up 16% to $35.4 million) and in the international market (up 5% to $7.3 million).

The Veterinary segment of Abaxis contributed 80% to the top line and is on the ramp up based on its huge product line and improved direct sales force. It intends to introduce new rapid assay of products, which would boost Veterinary segment revenue. We are further impressed with the newly-formed Abaxis Veterinary Reference Laboratories’ (“AVRL”) encouraging performance in its second full quarter and is complimenting well with the growth of the company’s veterinary segment.

With AVRL in full throttle, requisitions shot up 241%, and the customer base increased a massive 130% on a sequential basis. Abaxis is optimistic on its consistent performance in the veterinary market and expects to keep up with this growth momentum in the upcoming quarters.

Moreover, we encouragingly note that the company is taking initiatives to expand in the international medical market. The recent contract with a leading international biotechnology company to deliver 300 Piccolo Xpress instruments is a big step in this regard.

Amidst several ongoing disputes including a patent infringement case against Cepheid and a US Federal Trade Commission investigation leading to huge increase in legal expenses, the improvement in margins was encouraging for the company. We expect gradual resolution of these issues leading to further expansion in operating margin. Consequently, we are upbeat about the immense potential of Abaxis in the human and veterinary diagnostic market.

Our recommendation is in line with the short-term Zacks #1 Rank (Strong Buy).

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