2023-07-13 17:00:40 ET
Summary
- QuidelOrtho, a result of a 2022 business combination, was a strong player in the COVID-19 testing sector, generating $1.3 billion in 2021 from COVID products.
- The company experienced a dramatic drop in share prices in early 2022, with shares trading at around $86.15 as of July 2023, and a market cap of $5.67 billion.
- Despite a 44% drop in total revenue for Q1, 2023 compared to Q1, 2022, QuidelOrtho is expected to regain a steady future growth trajectory.
I first covered Quidel ( QDEL ) in 12/2020's "A+ Top Quant Rated Healthcare Stocks For Value, Growth, And Profitability". At the time it was a strong early player in the COVID-19 testing arena. Since that initial article Quidel entered into the combination described below.
As the world moves on it is addressing a whole new set of challenges. In this article I assess QuidelOrtho's investment merits as it faces a dramatically changed environment with sinking revenues.
QuidelOrtho is the result of 2022 business combination.
In 12/2021 Quidel ((QDEL)) agreed to acquire Ortho Clinical Diagnostics ( OCDX ) in a ~$6 billion cash and stock deal. the deal offered ~25% premium for Ortho's shares. At the time Quidel was riding high with outsized COVID-19 revenues.
Its 2021 revenues from COVID products came in at $1.3 billion. These revenues were ~75% of Quidel's total, a hefty increase from $891 million the previous year. At the time money was flowing freely to companies with FDA approved COVID testing products such as Quidel's QuickVue At-Home COVID-19 Test
The combination of Quidel and Ortho closed in 05/2022 initiating today's QuidelOrtho. Their combined revenues exceed $3.5 billion in 2021. Following the closing the two companies' revenue is parceled into four sectors below:
- Labs — Clinical chemistry laboratory instruments and tests;
- Molecular Diagnostics [MDx] — PCR tests and diverse other systems and instruments implementing test processes;
- Point of Care [POC] — Instruments and tests providing rapid results across a broad continuum of POC settings, including tests for professional healthcare providers and tests that can be taken at home;
- Transfusion Medicine — Immunohematology instruments and tests used for blood typing and antibody identification, donor screening instruments and tests used for blood and plasma screening.
With its business focused exclusively on these areas Quidel-Ortho is a pure play diagnostics company. Its COVID testing franchise generates revenues in each of these segments excluding Transfusion Medicine.
QuidelOrtho shareholders have had a wild ride as the pandemic waxed and now wanes.
As the pandemic developed QuidelOrtho shareholders found themselves launched on an exhilarating roller-coaster ride as shown by its share chart:
Shareholder enthusiasm overwhelmed its shares as it navigated ebbs and flows of COVID testing in late 2020. They peaked at >$300 in early 08/2020 on news that it was in line for NIH funding to support COVID-19 testing on its Sofia platform.
Later in August QuidelOrtho endured a big >20% pullback on competitive concerns; testing Goliath Abbott ( ABT ) upset the market when it notched approval for an inexpensive COVID test. From that point on QuidelOrtho bounced up and down, following a general downward trend.
In early 2022 the market reacted negatively to the combination. For the first time since 04/14/2020, early in the pandemic, it dropped below $100. It has since traded with no conviction in a broad range of closing prices between ~$70 and ~$100 with a short run on modest volume up to ~$117.64.
As I write on 07/11/2023, it is trading at ~$86.15. It carries a market cap of $5.67 billion.
Undervalued by outsized COVID infused Q1, 2022 revenues, QuidelOrtho is a buy.
QuidelOrtho's COVID testing success in its Q1, 2022 is serving as a tough headwind. Its quant ratings on Seeking Alpha's QuidelOrtho ratings summary panel lists it as a hold. Its quant ratings factor grade of F for growth is holding it back.
Its other ratings factor grades on 07/11/2023 as I write are all upper tier:
seekingalpha.com
CFO Busky issued its Q1, 2023 financial report during its earnings conference call. He pointed out how it was hamstrung by the misleading drop-off in Q1, 2023 revenues and EPS compared to its Q1, 2022 metrics for revenue and EPS.
He explained its 44% drop in total revenue for Q1, 2023 compared to Q1, 2022 as:
...reflecting the strong flu and COVID-related revenue in the first quarter of 2022. Strength of our COVID-related revenue year-ago highlights what we and others in the diagnostics space have been saying for several quarters now. We believe COVID-19 is transitioning to an endemic state and will continue to circulate like any other respiratory disease.
QuidelOrtho's strong Q1, 2022 adjusted earnings per fully diluted share of $8.03 on a supplemental combined basis compared to Q1, 2023's $1.80 is stark. The drop to $1.80 in the current quarter from $8.03 in the year prior quarter represents a fall of > 4X. This explains why quant's growth metrics, based on the QuidelOrtho's quant growth factors delivered a failing grade.
Summary
Going forward, once passing time washes out prior year's oversized comparables, I look for QuidelOrtho to perform in accordance with the potential locked into its strong growth oriented products. As a leading pure play medical technology company it benefits from growth in the following major trends:
Trends 1, 2, and 3 will each contribute to more interaction with QuidelOrtho as the combine to require more diagnostics. Trend 4 feeds into Quidel's long experience with artificial intelligence built into many of its diagnostic systems.
QuidelOrtho has nice Wall Street Analyst coverage with 7 analysts. Four of these rate it as strong buys, 1 buy, 2 holds. Their average price target for the stock is $ 125.00 for a +44.71% upside. QuidelOrtho is a solid buy at its current 07/11/2023 ~$86.38.
For further details see:
QuidelOrtho: Mapping A Future As Covid Revenues Move To Endemic Phase