mdesigner125/iStock via Getty Images
mdesigner125/iStock via Getty Images
There is peace even in the storm" - Vincent van Gogh
Today, we put QuidelOrtho Corporation (NASDAQ:QDEL) into the spotlight. The stock has lost just over a third of its value over the past few weeks as the company missed quarterly expectations, let go of its CEO and has seen several analyst firm downgrades. The company has also become the target of activist pressure. What's ahead for QuidelOrtho and its shareholders in the coming months? An analysis follows below.
Seeking Alpha
This San Diego headquartered diagnostic concern operates from four distinct business segments: Labs, Transfusion Medicine, Point-of-Care, and Molecular Diagnostics. The company is focused on in vitro diagnostic technologies designed for point-of-care settings, clinical labs and transfusion medicine. Revenues are broken down largely between respiratory and non-respiratory. The stock currently trades at just over $44.00 a share and sports an approximate market capitalization of just south of $3 billion.
Sofia 2 Platform (Company Website)
The company's Labs division targets small- and medium-sized hospitals. The company has nearly 90,000 units of its Sofia Platform installed, which delivers point-of-care testing. QuidelOrtho also offers the Savanna Platform, which provides multiplex real-time PCR testing within a sample-to-result operation.
Company Website
QuidelOrtho Corporation posted its Q4 numbers on February 13th. The company delivered non-GAAP profits of $1.17 a share, nearly 90 cents below the consensus. Revenues dropped just over 14% on year-over-year basis to $742.6 million, nearly $45 million under expectations. The company had adjusted EBITDA of $195 million for the quarter.
February Company Presentation
February Company Presentation
As can be seen above, respiratory revenues plunged 49% on a year-over-year basis, largely due to the Covid pandemic becoming endemic. The Labs division made up almost half of overall revenues (up 13% on a year-over-year basis, excluding respiratory) and just over 60% of sales came from North America. Non-respiratory revenue rose nine percent from the same period a year ago, it should be noted.
Management provided wide initial guidance for FY2024 due to uncertainty. It projects revenues of between $2.76 billion and $3.07 billion and sees non-GAAP EPS of between $2.40 and $3.07 a share. These disappointing results and guidance caused the stock to crater just over 30% on the day they were announced.
A week after the fourth quarter earnings report came out, the company announced the departure of its President & CEO. An interim leader has been put in place while QuidelOrtho conducts a search for a new CEO. It was noted at the time, the company might now become a potential takeover target or attract the attention of activists. T. Rowe Price owns some 13% of the equity, while Carlyle (CG) has 19% according to recent filings.
Since fourth quarter results hit the wires, three analyst firms, including Craig-Hallum have downgraded the shares to Hold/Sell. UBS downgraded the stock to Sell ($42 price target) on March 4th. The analyst at the investment firm stated he is now 'modeling lower-than-expected COVID-19 revenues and a slower ramp for its Savanna platform, and believes the company's lab business is facing challenging comps and uncertainty in the Chinese market.' Both RBC Capital ($81 price target) and Raymond James ($76 price target) maintained Buy ratings on QDEL following quarterly earnings.
Just over eight percent of the outstanding float is currently held short, and some seven percent of the equity is held by insiders (as of February 15th). On February 17th, a director sold just over $725,000 worth of stock. One week later, the company's CFO purchased nearly $100,000 worth of equity. Those are the only insider transactions in the shares so far in 2024.
February Company Presentation
QuidelOrtho Corporation exited the FY2023 with just over $160 million in cash and marketable securities, according to the 10-K filed for the 2023 fiscal year. It also lists $2.274 billion in long-term borrowings. The company delivered GAAP cash flow from operations of $280 million in FY2023. It used that cash flow to pay down $227 million of term loan debt and spent $7 million on share repurchases.
QuidelOrtho Corporation made $4.13 a share in FY2023 on $3 billion in revenue. The current analyst firm consensus has profits slipping to $2.56 a share in FY2024 on $2.83 billion in sales. They do project a rebound of earnings to $3.95 a share in FY2025 on sales growth of four percent.
The stock trades for just under 11 times trailing earnings and one times revenues, more than reasonable valuations. However, the company's debt load is a concern in the era of higher interest rates. QuidelOrtho had $147.6 million in net interest expense in FY2023, nearly double the $75.7 million in had in interest costs the previous fiscal year.
Add in the uncertainty of who the next CEO of the company will be and whether the company will see activist pressure, there are a lot of unknowns around QuidelOrtho right now. Sales and earnings are also projected to drop in FY2024. At some point, the company could be a good turnaround candidate and is a story to keep an eye on. For now, the recommendation is to remain on the sidelines.
Every time I think I am out of the woods, I am back in the fire." - Robert Black