Reaffirming Gen-Probe at Neutral - Analyst Blog
May 09 2011 - 2:13PM
Zacks
We maintain our Neutral recommendation on diagnostic products
maker Gen-Probe (GPRO). Revenues and earnings for
first-quarter fiscal 2011 beat the Zacks Consensus Estimates,
buoyed by healthy growth in the company’s clinical diagnostic
business. However, profit dipped year over year as revenue growth
was masked by higher costs.
Product revenues rose 6% on the back of higher sales from
clinical diagnostic products. However, the company’s blood
screening business (sales down 6%) remained lumpy, hit by lower
sales of TIGRIS systems to partner Novartis (NVS).
The California-based company backed its financial guidance for
fiscal 2011.
Gen-Probe is a dominant player in the rapidly expanding NAT
market, the fastest growing segment of the clinical diagnostic
market. It is a market leader in domestic gonorrhea and chlamydia
testing with its PACE and APTIMA assay product lines.
We believe
Gen-Probe is well placed with a slew of new products that are
expected to drive growth in the years ahead. Moreover, the
ongoing market shift away from traditional diagnostic methods
towards molecular testing represents a tailwind for the
company.
The company’s acquisition of specialty diagnostics firm GTI
Diagnostics in late 2010 represents a positive step, providing a
boost to its top line. Higher sales of GTI Diagnostics products
catalyzed double-digit growth in the clinical diagnostic business
in the first quarter.
Moreover, the company boasts a reasonably sound balance sheet
and is making prudent use of healthy free cash flows by means of
acquisitions and overseas expansion initiatives as well as
rewarding shareholders through share repurchases.
However, Gen-Probe competes with more established firms such as
Roche (RHHBY), Becton, Dickinson
(BDX) and Abbott Labs (ABT) in the maturing
molecular diagnostic industry. Moreover, the company’s clinical
diagnostics products are susceptible to reimbursement risk and its
international sales are subject to foreign exchange swings.
Gen-Probe’s struggling blood screening franchise may remain
under pressure due to a soft market condition and fewer TIGRIS
systems sold to Novartis. While new product development and
international expansions are vital for sustaining future growth,
associated high expenses (R&D investment and sales/marketing
expenses) may weigh on the company’s bottom line moving forward.
Our recommendation is supported by a short-term Zacks #3 Rank
(Hold).
ABBOTT LABS (ABT): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
GEN-PROBE INC (GPRO): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
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