On Wednesday, JPMorgan (NYSE:JPM) issued a downgrade for Quidel Corp . (NASDAQ:QDEL), moving the diagnostic healthcare manufacturer's stock rating from Neutral to Underweight. The firm also significantly reduced the price target to $37 from the previous $66. This adjustment follows Quidel's report of a considerable miss in both fourth-quarter 2023 margins and earnings, coupled with a 2024 guidance that fell short of expectations.
Quidel's recent financial disclosures revealed adjusted earnings per share (EPS) for 2024 projected to be 46% below the midpoint of market estimates. Revenue forecasts for the year range between $2.76 billion and $3.07 billion, compared to the Street's expectation of $2.95 billion. The company's outlook includes a decline to a slight growth in constant currency (cc) revenue, with non-respiratory revenue anticipated to grow by 4-6% cc, excluding certain headwinds. However, respiratory revenue projections for 2024 stand at $460-730 million, a decrease from $715 million in 2023.
The guidance for 2024 adjusted EBITDA is set at $565-720 million, which is notably lower than the Street's projection of $801 million. This translates into an adjusted EBITDA margin of 21-24%, a reduction from the previously communicated high-20s and the long-term guide of 27-29% shared at the December 22 analyst day. Additionally, adjusted EPS is expected to be between $2.40 and $3.07, a stark contrast to the Street's estimate of $5.07.
Quidel's margin and adjusted EPS miss are partly attributed to revised expectations for endemic COVID revenue, now anticipated to be $200 million in outer years, a decrease from the prior range of $200-400 million. This revision presents a margin headwind of 300-400 basis points compared to earlier assumptions. Furthermore, the company anticipates a 100 basis point margin dilution from scaling up Savanna manufacturing in 2024 before the fourth-quarter respiratory season.
Looking ahead to 2025, Quidel expects to return to high-20% adjusted EBITDA margins through significant cost-reduction initiatives, exiting the U.S. donor screening business, and the anticipated success of the Savanna product line, which is projected to generate over $250 million in annualized revenue three years post-launch. It's worth noting that the 2025 margin goals are based on a minimum of $200 million in endemic COVID revenue, a figure that has been consistently reduced over the years.
In light of these developments, Quidel's shares experienced a 35% drop after market close, while the Health Care Select Sector SPDR Fund (XLV) remained stable. JPMorgan's revised stance reflects concerns over the visibility into Quidel's core margin and adjusted EPS profile and the potential risks associated with the competitive market for the Savanna product ramp-up.
InvestingPro Insights
Quidel Corporation's (NASDAQ:QDEL) latest financial results and guidance have been met with skepticism by analysts, as reflected in the recent downgrade by JPMorgan. The InvestingPro platform offers additional insights that may help investors understand the challenges and potential ahead for Quidel. According to InvestingPro data, Quidel's market capitalization has adjusted to approximately $2.95 billion, with a trailing twelve-month revenue of $2.997 billion. Despite this, the company has experienced a revenue decline of 8.21% in the last twelve months as of Q4 2023.
InvestingPro Tips suggest that analysts are cautious, with three analysts revising their earnings downwards for the upcoming period and anticipating a drop in net income this year. Moreover, the company has not been profitable over the last twelve months, although there is a prediction that it will return to profitability within the year. It's also important to note that Quidel does not pay a dividend to shareholders, which could be a consideration for income-focused investors.
The metrics reveal a P/E ratio that has been notably high at -441.61, indicating that the market had previously been paying a premium for anticipated growth which has not materialized in the short term. However, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at a more reasonable 54.57. Additionally, the company's Price / Book ratio is 0.89, suggesting that the stock may be undervalued relative to its book value, which could attract value investors.
For those interested in delving deeper into Quidel's financial health and future prospects, InvestingPro offers a comprehensive suite of analytics and tips. There are a total of 5 additional InvestingPro Tips available on the platform, which can be accessed at https://www.investing.com/pro/QDEL. Investors looking to leverage these insights can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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