NEW YORK (GenomeWeb) – Goldman Sachs today upgraded shares of Alere to a Buy rating, but downgraded Quest Diagnostics' shares to Neutral.
In a research note, analyst Isaac Ro upgraded Alere from a previous Neutral rating and said that he believes that Alere's new management has brought focus to the firm's new products, streamlined its cost structure, and reduced its debt. As a result, he anticipates revenues to grow about 6 percent between the firm's fiscal years 2015 and 2018, and EPS to grow 17 percent during the same period.
Ro also was bullish about Alere's new molecular platforms, Alere i and Alere q, saying they will provide the firm exposure to the molecular diagnostics space, which he noted is growing at about 10 percent, the fastest growing subsector within diagnostics.
Near term, Alere should be able to leverage its CLIA-waived status in the US, driving instrument placements in certain point-of-care settings. The initial demand will be in flu and streptococcus testing, Ro said, but the company's new R&D initiatives could drive menu expansion "creating a better value proposition for physician offices, urgent care centers, and hospitals to adopt Alere i."
Alere's shares were up a fraction of 1 percent to $51.90 on the New York Stock Exchange in afternoon trading today.
Also, in downgrading Quest, Ro said that the previous Buy rating was based on an anticipated share gain from the Affordable Care Act, as well as margin expansion through cost savings, and capital allocation. "While volume trends continue to improve, we believe this is now largely captured by consensus," he said, adding that catalysts to growth, such as restructuring efforts and capital deployment have "largely played out."
"We prefer [Laboratory Corporation of America] given a superior growth profile, better balance sheet optionality, stronger track record of execution, and a relative valuation gap vs. [Quest] that has narrowed," Ro said.
In afternoon trading on the NYSE, Quest's shares rose a fraction of 1 percent to $72.32.