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Quidel Corporation (NASDAQ:QDEL) is a fairly modest growth story. The company’s revenue is expected to grow at a CAGR of high-single-digits in the next five years, driven by its Sofia, Sofia 2, and Triage MeterPro products. The company’s proposed acquisition of Ortho Clinical Diagnostics (OCDX) will help in generation of long-term revenue growth. Long-term investors can buy the company’s shares on pull-backs to maximize their gain.
Quidel offers advanced diagnostic solutions to improve human health. The company enjoys leadership position in developing rapid diagnostic testing solutions. The company sells its products directly to end users and distributors. The company’s diagnostic solutions help clinicians in detection and diagnosis of many critical diseases, such as infectious diseases, thyroid diseases, cardiovascular diseases, gastrointestinal diseases, and autoimmune diseases.
Growth Drivers
Sofia and Sofia 2 Analyzers
Quidel’s Sofia and Sofia 2 FIA (fluorescent immunoassay) systems are the company’s primary growth drivers. Sofia and Sofia 2 analyzers come to the market with unique software and Sofia FIA tests. The tests can deliver an automatic and objective result which is readily available on the instrument’s screen. The result can also be obtained in hard copy printout and in transmissible electronic form. As a result, Sofia and Sofia 2 enjoy strong demand in the diagnostic testing market.
The Sofia systems can be installed in both small and large laboratories, and in different healthcare settings, including hospitals, medical centers, and small clinics, which results in greater adoption rate for the products. Sofia and Sofia 2’s advanced technology and high-standard fluorescence chemistry make them next-generation products in diagnostic testing. The Sofia systems will drive Quidel’s revenue growth significantly higher in the years to come.
Triage MeterPro
Quidel’s Triage MeterPro is the company’s another growth driver. It is the company’s portable testing platform with a comprehensive menu of tests. The platform enables physicians to promote improved health outcomes via rapid diagnosis of critical diseases and health conditions. That’s why the product performs well in competitive environment.
Triage MeterPro helps in diagnosing congestive heart failure, acute coronary syndromes (“ACS”), and acute myocardial infarction (“AMI”), and therefore it enjoys significant demand in the marketplace. I expect the product will help Quidel generate meaningful revenue growth in the long term.
Competition
Quidel operates in a highly competitive industry. Its competitors include Abbott Laboratories (ABT), Beckman Coulter Primary Care Diagnostics, Thermo Fisher Scientific (TMO), Becton, Dickinson and Company (BDX), Meridian Bioscience (VIVO), and Danaher Corporation (DHR). Quidel competes with these companies on the basis of its advanced technology, quality of product, and price.
Quidel’s primary competitive advantage is that it develops advanced diagnostic testing products which are capable of driving long-term demand for the company. The products address several diseases and help physicians in the treatment of patients with critical conditions. This ensures Quidel’s long-term revenue growth remains intact.
Quidel’s another competitive advantage is its R&D activity, which is at the heart of fulfilling its purpose to deliver breakthroughs that change patients’ lives. The company continually develops new products that address the requirements of patients suffering from critical illnesses. In this way, the company generates long-term revenue growth.
Fourth Quarter 2021 Results
Quidel’s total revenue for the fourth quarter of 2021 came in at $636.9 million, down 21% year-over-year. The company reported non-GAAP EPS of $7.29 per diluted share in the fourth quarter of 2021, down 34% year-over-year. The company’s revenue for COVID-19 products was $511.8 million, compared to $405.3 million in the year-ago period, up 26% year-over-year.
The company reported muted financial results in the fourth quarter of 2021. Revenue decline was primarily driven by lower Sofia 2 Flu + SARS antigen FIA, which also impacted the company’s bottom line. Demand for Quidel’s COVID-19 testing products remained strong, and the company continued to accelerate development and production of tests for government, institutions, and individuals. Although the company delivered weak financial results in the quarter, its future growth prospect remains strong due to unlocking of new markets, which are OTC, employer, and government. The Sofia systems will help the company generate significant long-term revenue growth despite temporary headwinds.
In the quarter, the company signed a definitive agreement to acquire Ortho Clinical Diagnostics Holdings, one of the world’s largest in vitro diagnostics companies for $24.68 per share. The transaction will be funded through a combination of cash and newly issued shares of the combined company. The acquisition will help Quidel strengthen its leadership position in the diagnostics industry via bringing together various innovative and complementary products. I expect the transaction will result in significant revenue growth for the company in the long term.
Valuation
Quidel’s competitors are Abbott Laboratories, Thermo Fisher Scientific, Becton, Dickinson and Company, Meridian Bioscience, and Danaher Corporation.
| QDEL | ABT | TMO | BDX | VIVO | DHR | |
| GAAP TTM P/E | 6.94x | 30.32x | 29.64x | 47.06x | 20.57x | 33.39x |
| TTM Price to Sales | 2.82x | 4.92x | 5.80x | 3.91x | 3.87x | 6.88x |
| TTM Price to Cash Flow | 5.91x | 20.00x | 24.25x | 20.37x | 15.78x | 24.30x |
(Data Source: Seeking Alpha)
Quidel is available at a dirt-cheap valuation compared to its competitors. It has a balance sheet consisting of $802.8 million of cash and $139.2 million of debt. Quidel was primarily a COVID play. Since the pandemic and the disease are almost under control, the company’s shares are available at a cheap valuation. However, the company’s future growth prospect is strong due to its highly demanding diagnostic testing products. Therefore, I believe the company’s current valuation offers an opportunity to buy its shares for the long term. The company’s Sofia and Sofia 2 FIA systems are next-generation diagnostic testing products, which have taken rapid testing capability to a whole new level. Both the systems’ assay development techniques are unique and advanced, for which the products enjoy unparalleled demand in the market. The company’s Triage MeterPro has a variety of immunoassays and the ability to use whole blood, plasma, or urine for speedy testing of various diseases. The product enjoys increasing market share and strong demand. Both Sofia and Sofia 2, along with Triage MeterPro, will drive Quidel’s long-term revenue growth in a sustainable manner. Therefore, its stock price will rise significantly in the long term.
Quidel’s revenue has grown at a CAGR of around 48% in the last three years, driven by its COVID products. However, with COVID almost under control, I expect the company’s future growth rate will settle around high-single-digits in the next five years. The company’s trailing 12-month revenue is $1,698.60 million, and at a CAGR of 9%, its mid-2027 revenue will be $2,614.00 million, or $62.57 per share. In the last one year, the company’s shares have traded between the price to sales multiples of 2x and 4x. Applying a price to sales multiple of 4x on Quidel’s mid-2027 revenue per share, I get $250.28 as the company’s mid-2027 share price.
Risks
For remaining competitive and profitable, Quidel spends significant amount of resources for research and development. In this way, the company develops new products and technologies and develops new markets. However, there is no assurance that such efforts by the company will bring success to it because for Quidel the effort is significantly different compared to other companies. The reason is that the company’s molecular diagnostic products cannot be resold once they are rejected by the market. Hence, if the company’s above-mentioned efforts remain unsuccessful, the company’s revenue and profitability growth could get hampered.
Quidel depends on a limited number of key distributors for its business operations. Only four key distributors in the US help the company run its business. The company relies on a few key distributors as well for its international operations. If these distributors don’t help the company operate its businesses, its revenue growth and results of operations could be negatively impacted.
Conclusion
The company opened its largest immunoassay manufacturing facility in the last nine months in order to boost its output level tenfold to help meet demand. The company entered retail and domestic testing markets with its QuickVue product. I expect the company’s revenue will grow significantly as a result of this development. Long-term investors are advised to buy the company’s shares on dips for meaningful profit.
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