Rayno Molecular Diagnostics and Tools Update: CPHD, HOLX, PACB

Dominant Trend is Precision Medicine and Molecular Medicine

Lackluster revenue growth has tempered stock gains since Q3 earnings reports however the sector has always had good investment potential due to M&A and new products. Stocks are up from October lows. Our last update was in November and re-iterated the “Precision Medicine” trend which integrates targeted therapies with diagnostics or personalized medicine. Refer to our overall Rayno Dx and Tools focus list. Here are some of the recent movers with news:

Abaxis (ABAX) is recovering up 13.6% off October lows. ABAX Point of Care products are strong for human chemistry applications and broad-based veterinary testing. Margins and EPS are improving and revenue growth is estimated at 10% for next fiscal year.

Cepheid (CPHD) down over 7% at $32.50 on a Wells Fargo downgrade

Cepheid recently lowered 2016 targets despite growth of 15-18% and full year of $618-635M. Gross margin outlook was lowered 2-4%. This would equate to 4.2 P/S which is fairly valued.

Hologic (HOLX) has been one of our top picks and up 54% YTD at $41 now.The turnaround strategy and shake-up began in 2014 and is working. The Company was touted in This Week’s Barrons. 76% of the Revenue is US-based so there is a good International opportunity.

Illumina (ILMN) is down today at $ 185 but up 24% over one month and off lows for the year of $130 hit in October. Illumina is the technology and growth leader as sequencing dominates the life science space and genomics revolution. ILMN was recently added to the S&P 500.

Pacific Biosciences (PACB) is a market leader for Q4 up 100% in 3 months at $10/share. PACB is a second tier player in sequencing but with new products in Single Molecule Real Time technology and M&A potential.

Qiagen (QGEN) up 13.73% YD is a broad-based diagnostic and life science tools Company and a value play despite a high PE because of improving EPS. Revenues will hit $1.3B in 2015 but EPS could improve from $1.07 to $1.18 in 2016.

More clarity on the sector will come after JPMorgan Meeting in January followed by Q4 earnings. Pricing and reimbursement remains an issue.

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