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Piper Jaffray Upgrades Cepheid; Other Analysts More Cautious

NEW YORK (GenomeWeb News) – On the heels of a reported 19 percent increase year over year in Cepheid's second-quarter revenues, investment bank Piper Jaffray today upgraded the molecular diagnostics company to Overweight.

In a research note, analyst William Quirk upgraded Cepheid from Neutral and increased the price target on its shares to $43 from $37.

He said that he views Cepheid's GeneXpert and the firm's broad assay menu "as best in class and would use any related pull-backs as buying opportunities." He also noted that the potential inclusion of C. difficile and MRSA to the federal Hospital Inpatient Quality Reporting Program as a potential catalyst. A final ruling on such a move is expected next month.

Lastly, he took note of Cepheid expected to launch into the viral load market, which he called a "significant opportunity." Cepheid is anticipated to move into that market in 2015 in the US and the second half of 2014 outside the US.

Quirk's upgrade counters the views of several other analysts who, in spite of the revenue uptick reported by Cepheid on Thursday, have concerns about the Sunnyvale, Calif.-based firm's prospects.

Brandon Couillard of Jefferies lowered his earnings forecast for the company for 2013 to a loss of $.28 per share from an earlier estimate of break-even. He also lowered his estimate for 2014 to a profit of $.05 per share from $.25 per share. In a note, he cited Cepheid's reduction in its EPS guidance for 2013.

The new guidance is for a net loss of between $.27 and $.30 per share, with non-GAAP EPS of $.18 to $.21. Cepheid previously guided to between a net loss of $.05 and a profit of $.01 per share. Non-GAAP EPS was previously guided to be between $.41 and $.46.

Couillard maintained a Hold rating for the company but lowered his price target to $36 from $38.

Goldman Sachs' Isaac Ro maintained a Neutral rating on Cepheid and kept the price target at $32, but outlined several areas of potential concerns in a research note. He said that growth in Cepheid's core hospital-acquired infections franchise has slowed, while adoption of its chlamydia/gonorrhea assay is in its early days — the test was cleared by the US Food and Drug Administration in December. The company's "ramp to profitability remains underwhelming," he added.

Ro also said that issues concerning back orders are now behind Cepheid, but demand continues to run ahead of Cepheid's manufacturing capabilities, and additional investments could negatively affect margins in the near term. Though vendor consolidation in diagnostics could provide a lift to the company, given Cepheid's extensive assay menu, Ro said that pricing "will remain a concern for potential customers."

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