OSUR - OraSure Technologies: As Good As It Gets

2023-05-15 17:57:27 ET

Summary

• Today, we take our first look at OraSure Technologies, Inc., which has seen a huge and recent surge of revenues.
• However, this was almost entirely due to Covid-related sales which are projected to fall dramatically in the quarters ahead.
• Management is acting upon several cost cutting measures. Will it be enough to maintain profitability?  An investment analysis follows in the paragraphs below.

You can tell a lot about a society by what it fears ."? Vejas Gabriel Liulevicius.

Today, we look at OraSure Technologies, Inc. ( OSUR ) for the first time. The company is seeing gangbuster revenue growth currently. However, this is due to Covid-related sales which should fall dramatically in the coming quarters. The company has already recently reduced its workforce by 11% and is targeting other cost savings via facility consolidation, implementation of additional automation, and manufacturing process upgrades. Will it be enough to keep the company profitable and shareholders happy as OraSure adjusts to the end of the Covid pandemic? An analysis follows below.

Company Overview:

OraSure Technologies, Inc. is headquartered in Bethlehem, PA. The company makes products like point-of-care and home diagnostic tests, specimen collection devices, as well as it provides microbiome laboratory and analytical services. The stock currently trades around $4.50 a shares and sports an approximate $450 million market capitalization.

The company provides rapid diagnostics for HIV, Hepatitis C, COVID-19 and Ebola. OraSure also has oral fluid laboratory tests for detecting various drugs of abuse. The firm also offers a couple of easy-to-use and reliable biological sample collection and stabilization devices.

First Quarter Results:

The company reported first quarter numbers on May 10th. The company crushed expectations with non-GAAP earnings of 47 cents a share, roughly triple the consensus. Revenues surged over 129% on a year-over-year basis to $155 million, nearly $30 million over the median analyst firm forecast.

However, as you can see above, the entire boom in sales was completely related to its Covid business. Sales from OraSure's "core" business was flat from the same period a year ago.

The surge in Covid related sales resulted in huge improvements in the company's gross profits and margins as well.

Revenues from OraSure's InteliSwab product line came in at $118.3 million. This was up 33% from the fourth quarter of 2022 thanks primarily to the support of the Federal government's school testing program. However, this is as good as gets as far as OraSure's InteliSwab sales. The company is already ramping down production and management is also in the process of closing an overseas production operation as part of OraSure's broader strategy to consolidate manufacturing. Management has guided to $25 million to $30 million of InteliSwab sales in the current quarter, to give one the order of magnitude of the coming decline. OraSure expects overall revenue in the second quarter of between $62 million to $67 million.

The company posted a net profit of $24.3 million in the quarter. A level it is unlikely to achieve again for many years. This contrasts to a net loss of $16.8 million in 1Q2022 and a profit of $15.5 million last quarter.

Analyst Commentary & Balance Sheet:

The company gets very little coverage on Wall Street despite a decent market capitalization. After fourth quarter results came out in February, Raymond reiterated their Hold rating on the stock while Citigroup maintained its Buy rating and $7 price target on OSUR. Those are the only two analyst firm ratings I can find on OraSure Technologies so far in 2023.

Approximately two percent of the outstanding float in OraSure Technologies, Inc. shares is currently held short. There has been no insider activity in the stock since June of last year. The company ended the first quarter with just over $110 million in cash and marketable securities on its balance sheet and no long-term debt.

Verdict:

The current analyst firm consensus is that OraSure Technologies, Inc. will see 45 cents a share in earnings in FY2023 even as sales drop some seven percent to just over $360 million. Next fiscal year, revenues are projected to plunge over 45% and the company swing to a loss of 25 cents a share. There is a wide range of earnings and sales projections from analysts it should be noted. In addition, management's goal via layoffs and other cost cutting measures is to achieve cash flow breakeven status in FY2024.

OraSure Technologies appears to have done a great job ' monetizing ' the Covid19 pandemic and using the surge in those revenues to place its balance sheet in great shape. Management is taking prudent measures to reduce costs as those pandemic related sales now will dry up quickly.

However, it is hard to see what drives OraSure Technologies, Inc. stock higher from here given the company's aspirations are to get to cash flow breakeven in FY2024 and with overall sales dropping significantly over the next 12 months. Given that, an investment in OSUR is not currently recommended.

The trouble with hysteria is that it's contagious ."? Romain Gary, White Dog.

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