ALR ($21.58) Continues to Sell-off Slicing through 3 Mo. Technical Bottom
We have included Alere in our diagnostics and tools portfolio since 2/2/09 at a price of $25, and although the stock is trading more than 10% under that price 3 years later, there was an opportunity to get out in the 40’s with a nice profit. Nonetheless the Company is a major disappointment in a sector where much smaller companies have seen their stocks soar. Pure play diagnostic stocks such as Abaxis (ABAX $34.50), Cepheid (CPHD $38.25), GenProbe (GPRO $81.38), Luminex (LMNX $24) and Quidel (QDEL $15.61) have seen their stocks rise with top line revenue growth. Many of these stocks are not cheap with high PE’s and Price to Sales ratios of 5 or more, so investors are seeking revenue growth with unique products.
Within our portfolio we have only two losers since inception from Q1 ’09 and they are Alere (ALR $21.80) and Qiagen (QGEN $17.27). What these companies have in common is an aggressive acquisition approach utilizing a lot of leverage. Both appear to have value if one looks only at the financial metrics but the stocks have struggled. Qiagen stock has recently recovered with Q1 reported results of a 12% increase in revenues at $296.4M, operating income up 14% to 80.3M and EPS of 0.23/sh.and priced at a reasonable 3.3 times revenue.Qiagen made two acquisitions in 2011 buying Ipsogen and Cellistis together which contributed 7% of the 13% sales growth.Qiagen has a hybrid tools/diagnostics product strategy with a focus going forward in molecular and personalized medicine.
In the past, Alere has focused their growth strategy on rapid or point-of-care (POC-near patient) tests and has missed the potential of molecular and genetic testing captured by Cepheid and recently Quidel. ALR’s earlier acquisitions (Binax and Biosite) are now aging POC product lines and are in competitive markets like Flu testing or did not participate in the markets with the largest potential like diabetes.Moreover the POC markets now compete with large labs like Quest that have the lowest pricing. Alere does have the vision thing with a broad-based product strategy in “connected” health management, professional diagnostics and women’s health including innovative tests for CD4 and BNP. However it appears that the Company is a compulsive shopper for new product lines recently with Axis-Shield in diabetes and CVD, and eScreen for toxicology screening and employee health, and Arriva for diabetes. Entry into the diabetes market is important as the CEO, Ron Zwanziger , has extensive expertise in the area from previous companies.
In summary this is a very dynamic complex Company with many testing platforms targeting several markets. The fundamentals of Alere Inc. show value but the acquisitions or their integration into a cohesive strategy has resulted in big losses. Nonetheless investors who have the patience and appetite for turnarounds can be rewarded. 2012 Revenues are estamated at $2.79B with an EPS of $2.75. Acquisitions should be over, so are spin-outs next? The first milestone is a decent technical chart looking for the stock to stabilize, and the second milestone is a good quarter that shows some integration of the companies acquired.
Disclosure Long ALR