Cepheid (CPHD): New Tests Drive Growth, Competition Rife

On Jun 27, we issued an updated research report on Sunnyvale, CA-based molecular diagnostics provider – Cepheid (NASDAQ:CPHD) – which develops and markets fully integrated systems for clinical and non-clinical market tests. The company currently carries a Zacks Rank #3 (Hold).

Cepheid currently enjoys a strong position in the molecular diagnostics space, buoyed by escalating demand for its next-generation diagnostic products. As per Cepheid’s internal analysis, with the inclusion of additional Xpert tests, management expects rapid expansion in the company’s addressable market (from the current $4 billion to $8 billion by 2020).

Of late, management noticed a substantial uptake of Cepheid’s Carba-R diagnostic test in a number of hospitals in the U.K., following an increase in the prevalence of carbapenem-resistant organisms in the local area. Encouragingly, as per results from a recent study data, surveillance testing with Xpert Carba-R can effectively reduce infection control-related costs and the total cost of healthcare. We expect the demand for this test to ramp up once other healthcare providers realize its potential.

With respect to pipeline development, Cepheid’s Xpert Trichomonas for male urine claim is currently on track for FDA submission. On successful launch, Xpert Trichomonas will be the first FDA-cleared molecular test in the market with a male urine claim. In the international market, Cepheid’s Xpert Bladder Cancer is on track for a commercial launch in the fourth quarter of 2016; while Xpert Xpress Flu is scheduled for overseas commercial release and for moderately complex settings in the U.S. this year.

On the flip side, foreign currency headwinds have been affecting Cepheid’s results for quite some time now. Compared to its first-quarter outcome, Cepheid expects foreign exchange to favor its overseas business a little as management foresees signs of stabilization in the dollar movement, in quarter ahead.

Nevertheless, if the company’s hedging program fails to be effective against the frequently fluctuating U.S. dollar, Cepheid’s operations will face a major blow. Competitive headwinds and adverse legal issues continue to pose threats to the stock.

Key Picks in the Sector

Better-ranked medical stocks are CryoLife Inc. (NYSE:CRY) , IRadimed Corporation (NASDAQ:IRMD) and Masimo Corporation (NASDAQ:MASI) . All the three stocks sport a Zacks Rank #1 (Strong Buy).