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What’s in Store for Cepheid (CPHD) this Earnings Season?

Zacks

Cepheid CPHD is scheduled to report third-quarter 2016 results on Oct 18, 2016, after market close.

Last quarter, the company posted a positive earnings surprise of 35.71%. It is worth noting that Cepheid has outperformed the Zacks Consensus Estimate in all of the preceding four quarters, at an average of 38.53%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Danaher’s announcement to take over Cepheid for $4 billion led to a 52.6% rally in the latter’s share price. We believe that the deal is strategic fit for Cepheid as it will lend the company wider exposure and also an access to Danaher’s patient base. Additionally, Cepheid will be able to deal with margin and financial issues related to the escalating expenses associated with pipeline development.


CEPHEID INC Price and EPS Surprise

CEPHEID INC Price and EPS Surprise | CEPHEID INC Quote

We note that, Cepheid posted total revenue of $146 million in the last reported second quarter of 2016, up 10% year over year. This trend is expected to continue in the soon-to-be-reported third quarter as well on the back of strong revenue growth in both the U.S. and international segments. Also, the successful execution of the company’s strategy to grow its testing business is a major positive.

Cepheid continues to witness strong growth in its reagents business and is recognized as a leading player in the molecular HAI testing space. Moving to sexual health, the company’s Xpert TV assay recently received FDA approval for the detection of sexually transmitted diseases in men. The company’s other sexual health testing projects, throughout Europe and other parts of the world, should prove transformational as well.

Cepheid has also added the Xpert C. diff BT test to its group of C. difficile products outside the U.S. Recently, Cepheid announced expansion of the comprehensive Xpert C. diff BT for the detection of binary toxin-producing C. difficile strains. We believe all these products will boost the company’s top line in the days ahead.

In this regard we also note that, the company had expected to finalize its new assay Omni I-CORE prototype in the third quarter.

The company also has an impressive long-term expected earnings growth rate of 21.3%, higher than the industry average of 19.8%. The current year growth estimate stands at 65.3%, compared to the industry average of 10.2%.

Cepheid currently expects full-year 2016 revenues in the range of $618–$635 million, reflecting annualized growth of 15.1%–18.2%. In addition, the company’s 2016 adjusted loss per share expectation (excluding amortization expense) is pegged in the range of 31–34 cents.

Earnings Whispers

Our proven model does not conclusively show that Cepheid is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Cepheid has an Earnings ESP of -8.33%. This is because the Most Accurate estimate stands at a loss of 13 cents while the Zacks Consensus Estimate is a loss of 12 cents.

Zacks Rank: Cepheid has a Zacks Rank #1 (Strong Buy) which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are three companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Glaukos Corporation GKOS has an Earnings ESP of +200% and a Zacks Rank #1.

Edward Lifesciences Corp. EW has an Earnings ESP of +2.94% and a Zacks Rank #2.

Invuity, Inc. IVTY has an Earnings ESP of +15.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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