GPRO GoPro Inc

We retain our Neutral recommendation on diagnostic products maker Gen-Probe (GPRO) following its mixed third quarter results. Its adjusted earnings of 57 cents a share for the quarter topped the Zacks Consensus Estimate of 54 cents.

However, the California-based company incurred a loss in the quarter, hit by a sizable impairment loss on its equity investment in DNA sequencing firm Pacific Biosciences (PacBio).

Sales rose 5% year over year to $139.1 million, but missed the Zacks Consensus Estimate. Double-digit growth in the clinical diagnostic franchise was partly ebbed by the decline in the blood screening business.

Revenues from clinical diagnostic products spiked 16%, boosted by the company’s APTIMA women’s health business and acquisition of specialty diagnostics firm GTI Diagnostics. The company’s blood screening business continues to struggle with sales dipping 6% in the quarter, hurt by lower sales of TIGRIS systems to partner Novartis (NVS). Gen-Probe once again narrowed its sales and earnings forecasts for fiscal 2011.

Gen-Probe is one of the leading players in the clinical diagnostic space and is poised for growth in a rapidly expanding market for molecular diagnostic tests. It is a dominant player in the nucleic acid testing (“NAT”) market, the fastest growing segment of the clinical diagnostic market.

We believe Gen-Probe is well placed with a strong cadence of new products that are expected to support growth in the years ahead. Moreover, the ongoing market shift towards molecular testing represents a tailwind for the company. The healthy growth trend in the clinical diagnostic business is expected to sustain through fiscal 2011.

Gen-Probe’s new APTIMA trichomonas assay is already gaining favorable traction. The company recently won the U.S. approval for the APTIMA human papillomavirus (“HPV”) assay which is viewed as a major new opportunity for its clinical business.

Moreover, the company’s fully-automated molecular testing platform PANTHER is expected to significantly contribute to revenue growth in the years ahead as it broadens the testing menu for the instrument.

Gen-Probe is also making prudent use of healthy free cash flows by means of acquisitions, overseas expansion as well as rewarding shareholders through share repurchases.

However, Gen-Probe is faced with increased competition in a maturing blood screening market and its clinical diagnostics products face reimbursement risks. The company competes with more established firms such as Roche (RHHBY), Becton, Dickinson (BDX) and Abbott Labs (ABT).

Moreover, the company’s blood screening business is expected to remain under pressure due to a soft market condition andl ower instrument sales to Novartis. Costs associated with product development may also weigh on the company’s bottom line. Our recommendation is in agreement with a short-term Zacks #3 Rank (Hold).

 
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