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Mizuho Upgrades Cepheid to Buy

NEW YORK (GenomeWeb News) – Investment firm Mizuho late on Thursday upgraded Cepheid to a Buy rating, calling the Sunnyvale, Calif.-based molecular diagnostics firm "a best-in-class diagnostics company."

Analyst Peter Lawson upgraded Cepheid from a Neutral rating, although he lowered estimates to take into account potential lingering issues with the company's manufacturing capabilities, as well as a slower than expected uptake of new products.

In a research note Lawson said that Cepheid's underlying business remains strong in spite of recent challenges. In the third quarter the company missed the consensus Wall Street revenues estimate, blaming "intermittent interruptions in the supply of Xpert cartridge parts."

Lawson said that the supply issue may seep into the fourth quarter, but "the problem is under control and is incorporated in estimates and the stock price, and being addressed by bringing processes in-house."

In September, Cepheid said it was acquiring a plastics company to do some molding operations internally.

Cepheid also missed the average analyst estimates on the top line in the second quarter due to a delay in revenue recognition from its High Burden Developing Country program.

"We expect variability in the HBDC business and low visibility," Lawson said in his note, "but in general the business has exceeded our expectations. We also feel the HBDC business can be used as a Trojan hourse to move into new markets, such as Asia, where Cepheid has a very limited presence."

Lawson also noted the company product pipeline, in particular its chlamydia/gonorrhea test, which is expected to receive approval from the US Food and Drug Administration by the end of the year. Available in Europe, it will give Cepheid a high volume test that can be used on the firm's "extensive stablished base" as well as drive additional placements "by increasing the breadth of the menu" Lawson said.

He lowered revenue estimates for the fourth quarter, however, to $91.2 million from an earlier estimate of $93.9 million and decreased per-share estimates to a loss of $.02 from a profit of $.03.

For 2013, he revised revenue estimates to $394.6 million from $406.4 million and EPS to $.11 from $.35.