Quidel Corporation Stock Up 6% Today – Time to Buy QDEL Stock?

The price of Quidel Corporation stock is up more than 6% this morning in pre-market stock trading action following the release of a forecast for the third quarter of its 2021 fiscal year.

Sales of the San Diego-based manufacturer of diagnostics tests are expected to land at around $505 and $510 million for the three months ended on 30 September, resulting in a 6% to 7% increased compared to the top-line results reported during the third quarter of 2020.

During this period, COVID-related revenues should account for around 80% of the firm’s total top-line results. Additionally, Quidel informed that it secured a 12-month contract with the US government to supply over 51 million QuickVue® At-Home OTC COVID-19 tests. The value of the contract is estimated at $284 million.

As more companies and organizations are calling back workers to the office, the demand for rapid tests may increase. Can this upbeat preliminary report jump-start Quidel Corporation stock? In the following article, I’ll take a look at the price action and fundamentals of QDEL stock as we enter the fourth quarter of the year.

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Quidel Corporation Stock – Technical Analysis

The latest price action for Quidel Corporation stock remains parabolic same as back in September when we last wrote about the company. The price briefly broke above its short-term moving averages but rejected a climb above the $160 level.

So far today, if this pre-market uptick spills over as is to the live session, the price would jump above the 50-day simple moving average and it may either tag or break the 20-day SMA.

Trading volumes have been stalled lately and momentum indicators had turned bearish before today’s uptick. In this regard, the Relative Strength Index (RSI) closed yesterday at 45.8 while the MACD has entered negative territory upon crossing below the signal line.

Moving forward, if this positive development ends up pushing the price above the short-term moving averages the outlook for the stock would turn bullish. On the other hand, if a climb above the 20-day SMA is rejected, chances are that this would be a short-lived uptick and that could result in further weakness in the stock’s performance in the next few weeks.

Quidel Corporation Stock – Fundamental Analysis

In a previous article, we discussed how the company’s performance in past years was already quite positive. However, the pandemic prompted a significant surge in the company’s top-line results as sales multiplied by more than 3 times last year after Quidel launched its portfolio of COVID tests.

Gross profit margins of the company improved significantly last year to over 80%, up from a previous average of 60%, while GAAP operating margins expanded from an average of 20% to over 60%.

What is interesting is that analysts were expecting a significant deceleration in the company’s top-line results for this quarter as indicated by estimates compiled by Koyfin. Third-quarter revenues were expected to land at $176.5 million, which means that this $505 million forecast is exceeding analysts’ estimates by nearly 3 times.

It seems that the tailwinds that lifted the firm’s sales last year are coming back in full force as unvaccinated people – and even vaccinated ones – may be asked to take a test if they at some point experience COVID symptoms.

“Even with this incredible performance in the third quarter, we must reiterate that the SARS testing environment remains highly fluid, and we’ve learned that demand can change very quickly”, stated Douglas Bryant, the firm’s President and Chief Executive.

If we assume that the company will generate similar revenues during the fourth quarter, total sales would land at approximately $1.5 billion for the entire year. This would result in over $750 million in annual net earnings if the company’s bottom-line profit margins from last year remain unchanged.

Using such an estimate, the forward P/E ratio for Quidel would stand at approximately 7.6, which is a highly conservative valuation metric.

The last time we discuss Quidel’s valuation, I stated that the fair value of the company may range from $67 to $142.5 based on the pessimistic forecasts drafted by analysts back then. However, this change in Quidel’s outlook is calling for a revision of that estimate.

If we assume earnings per share of around $17.2 for this year (based on the $750 million net earnings estimate outlined above), a fair value for the stock based on P/E multiples ranging from 7 to 15 would result in an estimated fair price of $120.4 and $250.8.

In this scenario, the downside risk is fairly limited but the upside potential is particularly attractive as the stock could nearly double if sentiment toward QDEL stock changes positively.

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