NEW YORK – Investment bank Jefferies on Monday said it has initiated coverage of NeoGenomics with a Buy rating, and Hologic and QuidelOrtho with Hold ratings.
Jefferies initiated coverage for NeoGenomics with a price target of $22, Hologic with a price target of $85, and QuidelOrtho with a price target of $43.
In a note to investors, Jefferies analyst Tycho Peterson wrote that the investment bank is upbeat on secular growth drivers, insulated models, and valuations for diagnostics companies but that it prefers firms with strong commercial engines, such as NeoGenomics. However, he noted that companies in transition, such as QuidelOrtho and Hologic "may have upside with compressed multiples, but limited visibility today."
Peterson added that larger full-service reference laboratories like NeoGenomics have "less idiosyncratic" commercialization and reimbursement risk. He said that reference laboratories are trading at depressed valuations, and Jefferies sees the group of centralized CLIA testing companies, including NeoGenomics, "as set to outperform."
For distributed diagnostics companies, such as Hologic and QuidelOrtho, Peterson said that they are "in the final innings of post-pandemic transition, with re-jiggered portfolios supplementing lost respiratory revenues and depressed instrument placements — a nearly three-year headwind." With the exception of QuidelOrtho, COVID-19 "seems to be in the rearview," he added.
Earlier this year, QuidelOrtho suspended its financial guidance as incoming CEO Brian Blaser reviewed the business. Last month, the company eliminated the roles of chief commercial officer and chief operating officer, among other changes, to flatten the organization and improve its speed and efficiency, Blaser said.
Peterson wrote that while these companies are not yet back to normal, the market may be "overly pessimistic considering freshly fortified balance sheets and largely unchanged secular tailwinds."