On Thursday, Citi adjusted its financial outlook on shares of Quidel Corp . (NASDAQ:QDEL), a provider of rapid diagnostic testing solutions, by reducing its price target to $44 from the previous $48, while keeping a Neutral rating on the stock.
The adjustment follows Quidel's second quarter 2024 report, which showed revenue of $637 million, surpassing the consensus estimate of $614 million. The company's adjusted EBITDA and margin also exceeded expectations, coming in at $89.9 million and 14%, respectively, compared to the consensus forecast of $76 million and 12.4%.
Despite these positive results, Quidel's management decided not to reinstate the full-year 2024 guidance, which may now be addressed in the third-quarter call.
Quidel is in the process of implementing cost-saving measures that are expected to save approximately $100 million. Management anticipates these savings will be realized with about $50 million impacting the second half of 2024 and the remaining $50 million in the first half of 2025. The savings are projected to be split mostly between selling, general, and administrative expenses (SG&A) and gross profit.
The company's long-term financial health is a focus, with expectations for the adjusted EBITDA margin to return to high-20s percentage points in the next two to three years. This outlook is based on mid-single-digit percentage growth in top-line revenue, which management believes is attainable once additional menu items for the Savanna diagnostic system, specifically respiratory viral panel (RVP) and sexually transmitted infection (STI) tests, receive approval and hit the market, targeted for 2025.
Citi's revision of its model for Quidel takes into account the company's performance in the second quarter. While the firm acknowledges the positive results, it also notes that there is some risk associated with the company's 2025 projections due to current uncertainties in the near-term outlook.
In other recent news, QuidelOrtho reported second quarter revenues of $637 million, surpassing market expectations, along with an adjusted EBITDA of $90 million. The company's CEO, Brian Blaser, highlighted strategic priorities, including cost execution improvements, the launch of the Savanna instrument, and preparations for 2025 clinical trials for various diagnostic panels.
Despite a decline in adjusted gross profit margin due to decreased COVID-19 product sales, the company anticipates improved cash flow and a stable consolidated leverage ratio by year-end.
QuidelOrtho executed $100 million in annualized cost savings, with an expectation to realize $50 million in the second half of 2024. The company also plans two facility sales aimed at generating cash and reducing operating costs. In addition, QuidelOrtho is preparing for the launch of the Savanna instrument and expansion of diagnostic panels, both of which are expected to contribute to revenue growth.
Citi recently adjusted its financial outlook on QuidelOrtho, reducing its price target from $48 to $44, while maintaining a Neutral rating on the stock. This revision takes into account QuidelOrtho's Q2 performance and the uncertainties in the near-term outlook. However, the company remains optimistic about its long-term financial health, targeting an adjusted EBITDA margin in the mid to high 20% range within the next 2-3 years.
InvestingPro Insights
Quidel Corporation (NASDAQ:QDEL) is navigating a challenging financial landscape, as reflected by the recent adjustments made by Citi. To provide further context to Quidel's current situation, InvestingPro data indicates a market capitalization of $2.74 billion, signaling the company's significant presence in the diagnostics market. Despite a challenging environment, the company has demonstrated resilience with a gross profit margin of 48.13% in the last twelve months as of Q1 2024, showcasing its ability to maintain profitability in its operations.
However, it is important to note that Quidel is currently trading at a high EBIT valuation multiple, which could suggest that the stock is priced optimistically relative to its earnings before interest and taxes. This aligns with Citi's cautious stance on the stock's near-term outlook. On a positive note, Quidel has experienced a strong return over the last month, with a 24.22% increase in its price total return, hinting at investor confidence in the company's strategic initiatives and cost-saving measures.
InvestingPro Tips highlight that Quidel operates with a significant debt burden, which is a crucial consideration for investors weighing the company's financial stability. Additionally, the company does not pay a dividend to shareholders, focusing instead on reinvesting earnings back into the business. For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/QDEL, which delve into the company's shareholder yield, net income projections, and analyst earnings revisions.
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