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Goldman Sachs Downgrades Cepheid to 'Neutral'

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Investment firm Goldman Sachs on Tuesday downgraded Cepheid shares to "Neutral" from "Buy," citing the stock's outperformance compared to its peer group and a less attractive risk/reward at current levels.

In a research note, Issac Ro noted strong performance by Cepheid's stock and expected continued growth at the company, but expressed concern over its high price-to-sales multiple of 7.4 times, compared to a median of 2.6 times for its peer group.

"As a result, we move to the sidelines with Cepheid," Ro said.

He is maintaining a six-month price target of $35 on Cepheid's stock, as well as revenue estimates of $259.5 million for 2011 and $334.4 million for 2012. EPS estimates for 2011 and 2012 also were unchanged and are anticipated to be $.09 and $.53, respectively.

Ro said that an expanded test menu, stronger distribution to smaller hospitals, and broader use of molecular testing methods should continue to drive adoption of Cepheid's technology, and in 2011 the firm's installed base is expected to grow 27 percent year over year.

"The company's broadening test portfolio and larger footprint should drive higher consumable usage, which we expect to create a positive volume and mix benefit on gross margins," he said.

Ro added that Cepheid could make for an attractive M&A target "based on our belief that CPHD's growing installed base and expanding test menu is a unique asset in the diagnostics space."

In afternoon trading today on Nasdaq, Cepheid shares were down nearly 2 percent percent at $34.93.

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