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UBS Upgrades Cepheid Stock, But Lowers Price Target

NEW YORK (GenomeWeb News) – Investment bank UBS yesterday upgraded Cepheid’s shares from “Neutral” to “Buy” based on the current valuation of the stock.
Analyst Derik De Bruin noted in a research note that Cepheid’s stock is down 40 percent from its peak of $32.83 in late January and February, “due in part to insider selling, conflicting views on the importance of universal MRSA testing in the medical literature, and reimbursement confusion.” He wrote that the stock’s current valuation is “compelling.”
However, De Bruin lowered his 12-month price target on Cepheid’s shares from $31 million to $29 million. The firm’s shares were trading down .4 percent at $20.71 in early Friday afternoon trade on the Nasdaq.
De Bruin also lowered his fiscal-year 2008 revenue estimate to $186 million from $190 million, and increased his loss per share estimate from $.19 to $.21. “We expect instrument sales to be lumpier after the ’07 [Veterans Administration] ramp and there could be some impact from hospital financing concerns, but our 2009-10 forecasts are largely unchanged,” he wrote.
UBS has forecast 2009 revenue of $231 million and 2010 revenue of $273 million.
Sales for Cepheid’s GeneXpert molecular diagnostics system and its methicillin-resistant Staphylococcus aureus assay rose rapidly in 2007 following FDA clearance of both products early in the year. It reported a 71 percent increase in fourth-quarter 2007 sales to $40.4 million, which it attributed to adoption of its products by both the VA system and hospitals outside the VA system.
The VA has an ongoing MRSA screening and surveillance program that has been a primary adopter of molecular tests, such as those made by Cepheid and Becton Dickinson.
One of the reasons cited by De Bruin for the recent drop in Cepheid’s stock was a recent article in the Journal of the American Medical Association, which questioned the need for and effectiveness of universal MRSA screening programs in helping hospitals reduce hospital-acquired infections. However, a study published a week later in the Annals of Internal Medicine directly contradicted those findings.
“We believe evidence supporting the cost benefits of rapid molecular testing are mounting, and that near-term legislative trends are generally favorable for [Cepheid],” wrote De Bruin. “We are a bit cautious on the first half of 2008 due to concerns over hospital financing as it relates to capital equipment purchases and the potential for lumpier instrument sales now that the VHA ramp is essentially complete.”

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