Quidel Corporation Stock Up 9% in September – Time to Buy QDEL Stock?

The price of Quidel stock has gone up 9.5% so far in September as companies that manufacture rapid COVID tests have been experiencing a surge in the demand for its products amid the rise of the Delta variant in the United States.

Moreover, the company announced on 1 September that it will start selling an OTC COVID-19 Home Test at CVS Pharmacies and online this week. Quidel manufactures the popular QuickVue and Sofia antigen tests that are used by pharmacies, clinics, and other healthcare facilities to test patients for COVID.

However, the company has been experiencing supply-side constraints to ramp up its manufacturing capacity to meet a spike in the demand for its products lately while demand had slowed down before the Delta variant showed up.

Only yesterday, President Joe Biden informed the public that vaccination will be mandatory for government employees and third-party contractors while those who would prefer not to receive a shot will have to face repeated testing to access their work premises.

As a result, manufacturers of rapid tests like Quidel may experience further spikes in the demand for their products in the following weeks as this federal mandate starts to be enforced by government entities across the country.

Could the company respond promptly to take advantage of this upcoming spike in the demand for its rapid tests or is Quidel poised to underperform amid these supply-side constraints?

In the following article, I’ll take a closer look at the recent developments concerning the company while also assessing its price action and fundamentals to outline plausible scenarios for the rest of the year.

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Quidel Corporation Stock – Technical Analysis

Shares of Quidel slid 13% on the day that the company published its financial results covering the second quarter of 2021 as the firm reported a slowdown in the demand for its COVID-related products compared to the same period a year ago.

Meanwhile, this downtrend endured for a few days until the stock bottomed at $114.3 per share while the price has bounced off those lows to its current level of $141.2 per share.

Momentum oscillators have picked up some steam and might be favoring a bullish outlook for QDEL stock as the MACD has moved to positive territory upon crossing above the signal line on the back of increasingly positive histogram readings.

Moreover, the tailwind provided by both news about the commercialization of Quidel’s Home Tests and this recent mandate from the federal government to test workers who refuse to get vaccinated may push the share price higher in the following weeks.

The chart above shows that the price action could go parabolic as a result of the combination of the latest higher highs and lower lows. With that in mind, it would be plausible to expect significant volatility ahead for QDEL stock and this view is reinforced by the latest trading volumes, which have stood very close to the daily average – meaning that buying interest is solid.

Quidel Corporation Stock – Fundamental Analysis

Quidel’s performance was already fairly positive before the pandemic stroked as sales moved from $192 million in 2016 to $534 million in 2019 at a compounded annual growth rate of 40.6%. However, the pandemic was a game-changer for the company as its sales more than tripled in a single year, landing at $1.66 billion by the end of 2020.

Quidel enjoys outstanding profit margins of around 70% and 80% on its products while the company’s EBITDA margin has been steadily rising amid economies of scale.

Last year the company produced a net income of $810 million compared to $73 million it brought in 2019 on the back of this unexpected jump in sales while diluted adjusted earnings per share landed at $19.92 compared to $2.97 the previous year.

Meanwhile, during the six months ended on 30 June, the company reported non-GAAP earnings per share of $5.24 resulting in a simple run rate of around $10 per share for the year or nearly 50% of what the company brought last year.

Moving forward, analysts are expecting a significant deceleration in the company’s EPS growth. For 2021, adjusted EPS are expected to land at $7.4. This estimate is nearly 25% lower than the run rate outlined above. Meanwhile, adjusted EPS figures are forecasted to decline to $4.6 per share and $4.2 per share in 2022 and 2023 respectively.

At its current price of $141 per share, the company is being valued at only 14 times the adjusted EPS run rate for 2021 shared above. Even though it is fairly plausible to expect that earnings may decline in the future, the extent of that decline may not be as severe as market participants are expecting.

If we assume the company’s sales will remain at around $1 billion with net profit margins of 40% – in line with last year’s performance – this would result in earnings per share of approximately $9.5.

A more reasonable valuation of the company based on its currently uncertain growth prospects would be around $67 and $142.5 based on price-to-earnings ratios between 7 and 15. This results in a significant downside risk for the firm moving forward.

On the other hand, if these latest positive news have a material effect on the company’s top and bottom-line results, this valuation would have to be revised to incorporate these changes. However, for now, based on the current trend, the future performance of QDEL stock is highly sensitive to a decline in the rate at which COVID is spreading in the United States.

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