Cepheid Update Raising Target Price

CPHD : NASDAQ : US$38.47
Target: US$50.00

Cepheid is a leading pure-play molecular diagnostics company focused on developing, manufacturing, and marketing devices that facilitate molecular testing predominantly in the healthcare-associated infections (HAI) and oncology segments. Cepheid has 12 FDA-approved tests and 13 CE-marked tests in its clinical offering, which comprised 89% of its revenue in 2011.

Life Sciences — Biomedical Devices and Services
Investment recommendation
CPHD reported a strong beat-and-raise Q3 driven by continued strong demand for GeneXpert and new assays, and driven by strong US and OUS business, including HBDC. CPHD has completely replenished all of its backorder issues and has built up a solid month of test inventory.
Investment highlights
 CT/NG is emerging as an instrument driver. As our lab interviews suggested, CPHD confirmed that roughly half of its 300 CT/NG accounts are coming from consolidating competitive CT/NG assays.
 Revs/placements outperform. Q3 revs of $100.1M (+24%) topped our $93M (+16%)/Street’s $93.9M. Total commercial placements of 133 topped our 115E. Worldwide Xpert systems topped 5,000.
 Backorders are all cleared. CPHD has replenished all of its tests and has built finished goods inventory of four weeks, including flu. CPHD also hired two new manufacturing and supply chain VPs, strengthening the global operations team led by Warren Kocmond.
 Raised guidance. CPHD raised 2013 sales guidance by ~$7.5M to $389M-391M (from $380-385M) and raised EPS by about $0.03, with Adj. EPS guidance going to $0.22-0.24 (from $0.18-$0.21).
Our $50 PT assumes a 7.9x P/S multiple on our 2014 revs of $443M. We believe CPHD merits trading at a premium to its peers (5-7x), given its broad, growing platform and large install base of 5,000+.


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