NEW YORK – Investment bank Craig-Hallum on Thursday upgraded its rating of QuidelOrtho from Hold to Buy, with a price target of $57, on expectations that the firm's core growth will accelerate as it continues to penetrate the immunoassay market and expand its menu.
QuidelOrtho has "significant untapped earnings power which will be unlocked over the course of the next several years," analyst Bill Bonello wrote in a note to investors, adding the firm benefited from "robust multiples common to many diagnostic companies" in 2020 and 2021 due to the COVID-19 pandemic. Since reaching a peak of $285 per share in November 2020, QuidelOrtho's stock has declined approximately 85 percent.
In addition, the market reacted unfavorably to Quidel's December 2021 announcement that it would acquire Ortho Clinical Diagnostics for $6.0 billion, and its stock continued to trade down over the course of 2022. Over the past year, QuidelOrtho shares are down more than 50 percent, and earlier this year, the firm fired longtime CEO Doug Bryant after it missed its Q4 2023 estimates and guidance, Bonello added.
Despite its difficulties, Bonello wrote, he believes QuidelOrtho can generate "mid-to-high single digit revenue growth" and estimated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $757 million in 2027. He noted that the firm generates a significant portion of its revenue from respiratory testing, which is variable from season to season, but projected core revenue growth of 5 percent between 2024 and 2027, $100 million of COVID-19 testing revenue per year, and no donor screening revenue beyond 2025.
Bonello emphasized that the company's immunoassay business should help drive growth as QuidelOrtho has become more competitive in that market while it focuses on its integrated clinical chemistry immunoassay analyzer and growing its test menu.
If the firm's launch of its multiplexed real-time PCR instrument Savanna is successful, it would drive upside to Craig-Hallum's estimates and "could be a $200 million revenue platform over time," Bonello wrote.
There is also opportunity for margin expansion "driven by top-line growth, centralized procurement, manufacturing efficiencies, IT savings, exiting the donor screening business, and roll-off of Savanna development costs," which would be offset by inflation and declines in COVID-19 contribution, Bonello added.
However, volatility in the respiratory business, high inflation, failure to achieve productivity and efficiency targets, and delays in new product launches could pose risks for investors, he noted.
In Thursday morning trading on the Nasdaq, QuidelOrtho shares were up nearly 5 percent to $42.19.