Quest Diagnostics Inc. (NYSE: DGX) is a stock we have recently screened out for value investors who are looking for exposure to healthcare and now in genomics. Some investors might not recognize the value on the current trailing 12-month P/E ratio, but there is value here in this diagnostics player. Now the company has announced that it has completed its acquisition of Celera Corporation (NASDAQ: CRA).
Many areas in healthcare are no longer as feared by investors as in 2008 and 2009. It turns out that Obamacare has actually not crippled as many healthcare segments as feared. If one area is going to remain afloat in the healthcare treatment segment it is diagnostics.
Quest’s dividend is still less than 1% and that $0.10 quarterly payout has been in place since early-2006. With the dividend growth theme that investors are seeking, it would make sense that Quest will grow its dividend through time and come more in-line with peers.
Thomson Reuters has estimates of $4.33 EPS for 2011 and $4.87 EPS for 2012., indicating over 10% earnings growth on about 5% revenue growth. The value-boost here that remains unlocked and which acts as a hidden value that will generate future growth is Quest’s acquisition of Celera Corporation (NASDAQ: CRA). That is a $671 million acquisition, on the surface until you consider that almost half of Celera’s value was in cash. The revenue and earnings estimates will not be greatly changed for a few years on Quest after the addition of Celera but this is a key future growth mechanism that is being acquired on the cheap.
Celera has no real debt and carried over $325 million in cash and liquidity on its books. Quest will have a broader personalized genetic testing business for heart condition, cancer and more via genomics and proteomics after it integrates Celera. The old saying is that beauty is in the eye of the beholder, but it is feasible to think that Celera could possibly become a multi-billion value in the coming decade.
Quest recently paid $241 million in a settlement to get a Medicaid suit behind it. While the company has a larger debt load with over $3.5 billion in long-term debt versus a $89 billion market cap, Quest’s earnings ahead should be more than sufficient to offset leverage.
Shares closed Tuesday at $57.93, its 52-week range is $43.38 to $59.39, and Thomson Reuters has a consensus share price target of $64.28. A combined 2011 to 2012 blended earnings estimate puts a forward earnings multiple at only about 12.5-times expected earnings.
JON C. OGG
If you would have said ten years ago that Celera Corporation (NASDAQ: CRA) would be acquired by Quest Diagnostics Inc. (NYSE: DGX), most investors would have said that you were off your rocker. Celera was a leader in genomics at the time and it had a huge mountain of cash that made up much of its value.
Celera’s Berkeley HeartLab unit has a proprietary lipid testing technology, esoteric testing capability, advanced therapy guidelines and patient support services. The company is also focused on personalized disease management where it is “developing tests and services that identify a person’s inherent risk for a disease and may also characterize its biological basis, aiding selection among treatment options and monitoring treatment effectiveness.”
The value of the buyout is $657 million based upon an $8.00 buyout price. Interestingly enough, the buyout cost is actually much lower because Celera has roughly $327 million in cash and short-term securities on its balance sheet. Quest expects only a 1% revenue boost in 2011 revenues.
Celera was deemed by some to have some of the next-generation testing that goes back to when investors were all gung-ho on genomics. Think testing for personalized medicine. That day is not yet here but it is getting closer. The promise goes back to the late-1990s and early 2000s.
What Quest is getting is a deal on the cheap that could offer huge upside when you consider that Quest is much more dominant and prominent than Celera. Quest was almost 20-times its size in market cap and somewhere around 50-times its size in revenues.
We would perhaps highlight several other genomic stocks out there based in part on this deal. Human Genome Sciences, Inc. (NASDAQ: HGSI) is now in the drug phase and we all know that it has risen from the ashes back to the genomics days.
Affymetrix, Inc. (NASDAQ: AFFX) is in genetic analysis in the life sciences and clinical healthcare markets and it has been considered a buyout target in the past.
Genomic Health Inc. (NASDAQ: GHDX) has breast cancer testing and is worth $675 million in its market capitalization.
Complete Genomics, Inc. (NASDAQ: GNOM) develops and commercializes a DNA sequencing platform for human genome sequencing and analysis and it worth nearly $190 million in market cap.
Rosetta Genomics Ltd. (NASDAQ: ROSG) develops microRNA-based diagnostic and in Israel, but its market cap is so small that most may forget that it is even there.
HELICOS BIOSCIENCES (HLCS) is pink-sheet listed now, but it is the one that was aiming for the $1,000 genome map.
JON C. OGG
Celera Corporation (NASDAQ: CRA) has made the transition away from its old ties and is now its own operating entity. That is also correct with just the tree letter call sign for its news NASDAQ ticker, as those changes have been allowed for some time. As the PR noted, “… a strong financial position, balance sheet and pipeline with no debt. It is a leader in diagnostics and personalized medicine, with genetic discoveries and tests predict risk and optimize therapy for dozens of diseases.”
We should get the full data on its operations, guidance, financials, and possible long-term estimates in the coming weeks now that its quarter ended yesterday. There was some fairly recent data on this, although we have learned that it’s always more trusted data when it has been set rather than when there is pondering over it.
What has been interesting is that this old genomics leader has really been on the road to diversifying away from what many have thought of as science fiction into a company with real tests and a real pipeline. Its partnership with Berkeley Heart Lab will launch a diagnostic test for coronary heart disease this month, which should indicate patient risk and response to statin therapy.
The company’s portfolio includes tests for HIV and clotting test for menopause and women on birth control, and biomarkers for conditions such as oncology through a partnership with Merck.
July 1, 2008
There may be a play in this $6.7 Billion merger where Invitrogen Corp. (NASDAQ: IVGN) is acquiring Applera’s Applied Biosystems Group (NYSE: ABI). What is interesting about this Applied Biosystems is that it is an operating unit of the Applera Corp., and the other operating company under Applera is called Celera Group (NYSE: CRA). Celera Group also only has a $1.04 billion market cap after today’s move and its actual spin-off was just approved in early May.
Celera projected its fiscal 2008 to have $135 to $140 million in revenues, with expenses in R&D of $40 to $45 million and SG&A at $70 to $75 million. Celera anticipated at its last earnings date that it will be profitable on a non-GAAP basis for fiscal 2008, although non-GAAP earnings may be near break-even for the fourth quarter.
It also noted that it anticipates a year-end balance of $330 to $340 million in cash and short-term investments after it makes payments to the alliance with Abbott for the settlement charge associated with the Innogenetics litigation and working capital requirements.
Shares of Celera are up almost 3% at $12.96 at 1:50 PM EST and that move is actually on thin volume of only 3355,000 shares (average volume is about 550,000 shares). It’s almost like some traders have made the proper ties today but with thin volume it seems that many have overlooked the tie.
Celera is a molecular diagnostics operation in identification and validation of diagnostic markers using its proprietary genomics and proteomics discovery platforms.
deCODE genetics Inc. (NASDAQ: DCGN) is another company that wants to develop drugs and diagnostics using genetics and genomics that is based in Iceland.
June 12, 2008
There were some research calls that are affecting many shares of biotech stocks this morning, as follows:
- Alexion Pharmaceuticals (NASDAQ: ALXN) started as Buy at Piper Jaffray, shares up almost 2%.
- Oscient Pharmaceuticals (NASDAQ: OSCI) started as Neutral at Piper Jaffray; shares flat as a thin volume stock.
- Sangamo Biosciences (NASDAQ: SGMO) Started as Sell at Brean Murray; shares down 11%
- Vivus (NASDAQ: VVUS) Cut to Market Perform from Outperform at Wachovia; shares down some 4%.
Elsewhere, Celera Genomics (NYSE: CRA) was started with a “Perform” rating at Oppenheimer. While Celera is a molecular diagnostic company, they are involved in the identification and validation of diagnostic markers using their own proprietary genomics and proteomics discovery platforms.
May 29, 2008