Cepheid Posts Prelim 2Q13 Results - Analyst Blog

Cepheid (CPHD) disclosed preliminary results for the second quarter of 2013 based on current projections. The molecular diagnostic company is slated to release exhaustive second-quarter results on Jul 18.

A Look at Elementary Results for 2Q13

For the second quarter, Cepheid estimates adjusted earnings per share of 2 cents compared with adjusted earnings of 11 cents in the year-ago quarter. However, this excludes stock-based compensation of about $6.5 million in the quarter. Including the stock-based compensation, the current Zacks Consensus Estimate is pegged at loss of 2 cents per share.

On a reported basis, the company estimates net loss of $6.6 million or 10 cents per share in the quarter under review, worse than the net income of $1.1 million or 2 cents per share in the prior-year quarter.

The company expects revenues of about $96 million, a record high for Cepheid. This is substantially higher than the year-ago revenues of $81 million and the current Zacks Consensus Estimate of $92 million. Growth was led by higher-than-expected revenues from High Burden Developing Countries (HBDC) and robust growth in overseas commercial clinical business.

Among the segments, Cepheid envisages commercial clinical revenues to be around $70 million and revenues from non-clinical franchise to be $9 million. Revenues from HBDC are estimated at $17 million for the second quarter, another new peak for the company.

Commercial clinical revenues were primarily driven by higher sales of reagents (up 17% year over year to $60 million) on the back of stronger Xpert growth (up 22% year over year). As per management, North American commercial clinical revenues came in at the lower end of Cepheid's expectations.

On a sequential basis, commercial clinical reagents revenues were flat. Growth (up $4 million) was negated by an expected decline in Xpert Flu sales (down $3 million) due to seasonality of flu and lower revenues from non-Xpert test. Moreover, placements ! of 53 commercial systems in North America and 156 systems in the overseas market are expected in the quarter under review accounting for $10 million of commercial clinical system revenues. System placements were aided by three consecutive quarters of backorders due to supply lag on account of manufacturing disruption for most of the second half of 2012.

Our View

The sales growth reflects a favorable amalgamation of Cepheid's effort to return to normal manufacturing operations and solid demand in end-markets. The ongoing efforts on capacity expansion should enable the company to meet the currently assessed soaring market demand for its offerings.

Although HBDC revenues improved in the quarter, we are wary about the impact of this low-margin business on the gross margin. Moreover, Cepheid posted loss after two successive quarters of profitable growth.

The company expects to launch a gamut of tests in the U.S. as well as the overseas market in 2013. In our opinion, test menu expansion is a significant growth catalyst for this molecular diagnostic company. We believe that Cepheid's valuation will be boosted by its healthy pipeline and periodic product launches going forward.

The stock carries a Zacks Rank #2 (Buy). Other Zacks Rank #2 stocks such as Edwards Lifesciences Corp. (EW) and MAKO Surgical Corp. (MAKO) are likely to do well. ResMed Inc. (RMD), carrying a Zacks Rank #1 (Strong Buy) also warrants a look.