Quidel Corporation Stock Up 13% in December – Time to Buy QDEL Stock?

The price of Quidel Corporation stock has gone up 13% so far this month following the appearance of the omicron variant of the coronavirus as market participants seem to believe that the tailwind that has been lifting the company’s top-line performance during the pandemic may endure for longer than expected.

The number of daily virus cases in the United States has been steadily rising to its highest levels since September. Back then, the spread of the Delta variant in the country was already peaking while it appears that omicron could be transmitting faster considering the fast pace at which cases have spiked in the past few weeks.

For Quidel, a company that produces COVID-19 PCR and rapid tests, another severe wave of the virus in multiple countries around the world could lead to a sustained increase in the firm’s sales for what remains of the year and possibly during the first quarter of next year as well.

What could be expected from this COVID stock in this current environment? In this article, I will be assessing the price action and fundamentals of Quidel Corporation stock to outline plausible scenarios for the future.

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Quidel Corporation Stock – Technical Analysis

The lower bound of the parabolic formation that I highlighted in my previous article about QDEL stock held quite well during the October-November post-earnings decline and the stock has bounced strongly off that threshold amid the appearance of the omicron variant.

This month’s advance is signaling a shift in the market’s sentiment toward the company and a break above the 200-day simple moving average is reinforcing a bullish outlook for Quidel Corporation stock.

Trading volumes have been increasing lately with one notable spike on 20 December when around 2.4 million shares were exchanged – a figure that exceeded the 10-day average by nearly 4 times. Back then, the price of QDEL stock went up nearly 8%.

Meanwhile, momentum indicators are also positive as the Relative Strength Index (RSI) is standing at 63 while the MACD has crossed above the signal line and it is climbing near its July and September 2021 peaks on the back of steadily increasing positive histogram readings.

Moving forward, it seems plausible that the price could reach the $200 level in the next few days or weeks and the fast spread of the Omicron variant could be the catalyst that pushes QDEL stock to that level.

Quidel Corporation Stock – Fundamental Analysis

On 11 November, Quidel released a statement saying that early data suggested that its PCR and rapid tests were able to detect omicron COVID-19.

“While our studies are ongoing, the early data give us confidence that our American-made PCR and rapid antigen tests can detect COVID-19 caused by the Omicron variant.”, stated Douglas Bryant, the President and CEO of Quidel Corporation.

At this point, and considering the largely unpredictable trajectory of the pandemic, it is very difficult to model how the top-line results of Quidel Corporation will look like in the following two quarters.

Thus far in the first nine months of 2021, the company produced total revenues of $1.06 billion resulting in a 24.5% compared to a year ago. Meanwhile, gross margins stood at 73.6% compared to 76% reported by the firm a year ago while net margins stood near the 40% level.

Since the company’s top and bottom-line margins have been particularly stable, one could model various scenarios for Quidel’s sales to estimate how much money the company could generate in the next year or so.

According to estimates from analysts, revenues could land somewhere between $782 million and $1.11 billion next year. These scenarios assume that sales of COVID-19 tests will somehow decelerate in 2022.

In my view, even the most optimistic scenario for Quidel’s top-line performance is quite conservative considering that multiple other variants could appear and it seems unlikely that testing will suddenly slow down even if the severity of the pandemic diminishes.

With that in mind, using a run-rate of this year’s results and assuming a 20% jump in Quidel’s revenues next year, the firm’s top-line results could land at around $1.7 billion in 2022 which would result in net earnings of $680 million (40% net margin) and earnings per share of approximately $16 per share on a fully diluted basis.

Based on that estimate, Quidel Corporation stock would be trading right now at 10x its 2022 estimated EPS. This is a company with zero long-term debt, almost $600 billion in cash at hand, and that could generate almost $300 million in free cash flows next year.

From a fundamental perspective, the upside potential is there and omicron and other variants could continue to lift the firm’s top and bottom-line performance for longer than the market expects.

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