On Apr 12, we downgraded genetic products company, Affymetrix Inc. (AFFX) to Underperform based on the company’s disappointing preliminary data for the first quarter of 2013.
Why the Downgrade?
Estimates for Affymetrix have been declining ever since it reported preliminary first-quarter results on Apr 9. Affymetrix’s expected revenues for the quarter are $78 million, which is significantly lower than the Zacks Consensus Estimate of $83 million. Further, the company’s current secured debt stands at $70 million.
Following the release of the dismal preliminary results, the Zacks Consensus Estimate for 2013 has gone down significantly by 37.5% to 5 cents per share in the last 7 days. The Zacks Consensus Estimate for 2014 has also declined (down 7.1% to 13 cents per share) for the same period. With the Zacks Consensus Estimates for both 2013 and 2014 going down, the company now has a Zacks Rank #5 (Strong Sell).
Cause of Concern
Affymetrix is posed with intense competition across its core markets and is exposed to tight global academic spending environment, which leads us to tread with caution. Weak gene expression array sales, especially in Japan, continue to weigh on the top line. This offset healthy revenues from genotyping and cytogenetics products, and moderate contribution from eBioscience.
The company also needs to leverage its debt level in an effort to strengthen its balance sheet. Given the massive pressure on the business, achieving its restructuring target appears bleak. The current Zacks Consensus Estimate for earnings per share for the first quarter of fiscal 2013 is nil, which declined 1 cent in the last 7 days.
Other Stocks to Consider
While we prefer to avoid Affymetrix until we see signs of improvement in the company’s performance, other companies like Osiris Therapeutics (OSIR), Cleveland BioLabs (CBLI) and Athersys (ATHX), all carrying a Zacks Rank #1 (Strong Buy), are expected to do well in the Medical-Biomed/Gene industry.
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