Launch Of OraQuick HCV Self-Test And Genomics Ventures Will Open Markets Amid Profitability Pressures

Key Takeaways

• The international launch of the OraQuick HCV Self-test and upcoming blood proteomics launch offer significant revenue and growth opportunities.
  
• Streamlining operations and internalizing production enhance efficiency, margins, and focus on high-growth and innovative sectors.
  
• Restructuring and market expansion efforts face execution risks, potentially affecting profitability and earnings amid challenges from segment exits and international growth pressures.

Catalysts

Provides point-of-care and home diagnostic tests, specimen collection devices, and microbiome laboratory and analytical services in the United States, Europe, and internationally.

• The successful international launch of the OraQuick HCV Self-test following WHO prequalification is expected to expand OraSure Technologies' revenue streams internationally, particularly in markets with high incidences of Hepatitis C. This should drive revenue growth.
  
• The company's strategic exit from the risk assessment testing business, which has been slightly unprofitable, should streamline operations and improve net margins as it focuses on higher-growth and higher-margin segments.
  
• The internalization of production for certain sample management products is anticipated to leverage existing infrastructure and lead to expanded gross margins through improved operating efficiencies.
  
• Upcoming launch in blood proteomics, targeting rapidly growing markets in chronic illnesses, represents a significant growth opportunity, which could add to revenue and, given the innovative nature of the product, potentially support gross margin expansion.
  
• The collaboration with PacBio to validate OraSure's DNA Genotek saliva collection devices for new genomic applications exemplifies the potential for expanded market applications and revenue streams within the genomics space.

OraSure Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OraSure Technologies's revenue will decrease by 17.0% annually over the next 3 years.
• Analysts are not forecasting that OraSure Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate OraSure Technologies's profit margin will increase from 5.1% to the average US Medical Equipment industry of 13.0% in 3 years.
• If OraSure Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $16.7 million (and earnings per share of $0.22) by about February 2028, up from $11.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.2x on those 2028 earnings, up from 25.1x today. This future PE is lower than the current PE for the US Medical Equipment industry at 35.0x.
• Analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.58%, as per the Simply Wall St company report.

OraSure Technologies Future Earnings Per Share Growth

Risks

• The exit from the risk assessment testing business by the end of 2024 could negatively impact total revenue and gross margin, as this segment is experiencing declining revenue and has become slightly unprofitable.
  
• Continued international growth, despite being a positive revenue driver, offers lower gross margins compared to the corporate average, which could strain overall profitability if the mix of sales shifts further toward international markets.
  
• The sample management revenue decreased by 16% year-over-year in Q3, which could indicate a broader challenge in recovering post-COVID and continuing a pattern of volatility that may impact future revenue stability.
  
• Partnership and market expansion strategies, like the Sapphiros partnership and ventures into the proteomics space, require investment and are contingent on pending regulatory processes, which present execution risk and potential impacts on earnings if delays or market acceptance challenges arise.
  
• The company's recent restructuring efforts and wind down of certain businesses, although aimed at improving operational efficiency, may take time to fully reflect positive financial outcomes, possibly impacting net margins and earnings in the short term.

Valuation

• The analysts have a consensus price target of $5.75 for OraSure Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $128.4 million, earnings will come to $16.7 million, and it would be trading on a PE ratio of 32.2x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of $3.82, the analyst price target of $5.75 is 33.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.