Affymetrix Reiterated at Neutral - Analyst Blog
September 07 2012 - 6:00AM
Zacks
We reiterate our Neutral
recommendation on Affymetrix Inc. (AFFX) following
its second quarter results. In the reported quarter, adjusted
(excluding one-time items other than stock-based compensation
expense) loss of 13 cents per share was worse than the Zacks
Consensus Estimate of a loss of 7 cents a share.
However, revenues increased 2.7% year over year to $66.4 million,
marginally ahead of the Zacks Consensus Estimate of $66 million.
Revenues included roughly $1.4 million from the recently acquired
eBiocience holding. Currency fluctuations negated revenues by 2%.
Scientific services contributed to higher revenues, partially
offset by lower chips sales.
Affymetrix is a leading provider of microarray-based products and
services to the global research community. Along with
Illumina Inc. (ILMN), it is one of the two major
providers of microarray technologies primarily used in the field of
genetic research. It also holds a leading position in the gene
expression products and services market.
The company is shifting its research and development (R&D)
focus from discovery and exploration markets to the faster-growing
validation and routine testing markets. Affymetrix reckons
cytogenetics and cancer research to be promising areas for
expansion, representing market opportunities of roughly $200
million and $500 million, respectively.
In addition, the recent acquisition of eBioscience Holding is
expected to boost Affymetrix’s foothold in the fast-growing
immunology, oncology and translational medicine markets,
representing an annual opportunity nearing $2.5 billion. It will
diversify the company’s revenue base, expand its product range (to
include a vast array of reagents) and reinforce its growing
molecular diagnostics business.
Affymetrix is also expanding its customer base through new product
launches and strategic alliances. Moreover, the company is pursuing
a number of strategies (including expansion into new markets) to
expand its top line.
However, Affymetrix operates in an intensely competitive industry
and faces risks associated with lower microarray demand and R&D
spending by its customers due to a soft economy and government
actions including budget cuts.
Moreover, the company’s core business, the Expressions unit (which
constitutes about one-third of the business) has not been
performing up to the mark. Despite higher volumes and improving
North American array sales, a mix of higher throughput but lower
cost products act as a drag on revenues.
The Life Science Reagents business too is down, due to the
termination of a distribution agreement in North America for one of
its key products. The company expects to face near-term headwinds
as the business shifts to direct sales.
Despite these headwinds, the company has been successful in
expanding its top line and stabilizing its business through
strategic acquisitions and operational synergies. We believe that
the company will effectively integrate its latest eBioscience
acquisition so that it does not end up being a drag on the bottom
line. We currently have a Neutral recommendation on Affymetrix,
which carries a short-term Zacks #2 Rank (Buy rating).
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