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Ortho Clinical Diagnostics Holdings: A Quick Review
Ortho Clinical Diagnostics – OCDX went publicIn January 2021 the company raised approximately $1.3 Billion in gross proceeds from an IPO, which was priced at $17.00 a share.
The company provides diagnostic services primarily for hospitals in the U.S.
OCDX’s near future is uncertain because of the approval hold that could be placed on the acquisition and the sharp drop in Quidel stock prices.
Given these uncertainties, I consider OCDX to be a Hold at $17.20.
Company
Ortho Clinical, Raritan in New Jersey, was established to develop a suite services for hospitals in the U.S.
Chris Smith, the Chairman and CEO of the firm, is in charge of management. He was previously CEO at Cochlear Limited, and has held senior positions in many healthcare companies.
Below is a short overview video about the Covid-19 antibody testing program at the firm:
(Source)
The company’s principal offerings are:
The company targets customers in clinical laboratories and says it sells to over 70% of U.S. hospitals.
OCDX’s Market & Competition
According to a 2020 Market Research reportAccording to Allied Market Research the global market in vitro diagnostics was valued by $67.1 billion in 2019. It is expected that it will surpass $91 billion by 2027.
This is a 4.8% CAGR forecast from 2020 to 2027.
The main factors driving this expected growth are an increase in chronic diseases and infections, as well as a growing number of older people worldwide who are more susceptible to immune disorders due to weakening immune systems.
Demand will rise over the long term if there is a greater focus on personalized medicine and continued innovation by market participants.
The following are major industry competitors or other participants in the various business areas of this firm:
OCDX’s Financial Performance in the Recent Past
5-Quarter Total Revenue (Seeking Al and The Author).
5-Quarter Gross profit (Seeking Alpha, The Author)
5-Quarter Operating Income (Seeking Alpha and The Author).
5-Quarter Earnings/Share (Seeking Alpha and The Writer)
(Source data for the GAAP financial charts above)
As the chart below illustrates, OCDX’s stock prices have risen 4.31 percent over the U.S. S&P 500 Index rise of 9.4 per cent in the past twelve months.
52-Week Stock Price (Seeking Al)
(Source)
OCDX Valuation Metrics
Below is a table listing the relevant capitalization and valuation figures of the company.
|
Measure |
Amount |
|
Market Capitalization |
$4,090,000,000 |
|
Enterprise Value |
$6,030,000,000 |
|
Price/Sales |
1.92 |
|
Enterprise Value/Sales |
2.95 |
|
Enterprise Value/EBITDA |
19.62 |
|
Free Cash Flow (TTM). |
$259,240,000 |
|
Revenue Growth Rate (TTM). |
15.66% |
|
Earnings per Share |
$173.80 |
(Source)
Bio-Rad Laboratories, (BIO) is a suitable partial public comparable. Below is a comparison of their primary valuation metrics.
|
Metric |
Bio-Rad Labs. (BIO) |
Ortho Clinical Diag. (OCDX) |
Variance |
|
Price/Sales |
5.62 |
1.92 |
-65.8% |
|
Enterprise Value/Sales |
5.80 |
2.95 |
-49.1% |
|
Enterprise Value/EBITDA |
24.65 |
19.62 |
-20.4% |
|
Free Cash Flow (TTM). |
$529,190,000 |
$259,240,000 |
-51.0% |
|
Revenue Growth Rate |
14.8% |
15.7% |
5.7% |
(Source)
Ortho Clinical Commentary
In its last earnings call covering Q4 2021’s results management highlighted that it does not heavily rely on COVID testing. It also noted that there are comparatively low ‘headwinds’ due to reduced COVID tests in its broad range of tests.
The firm saw significant growth in its Clinical Labs, Transfusion Medicine and Transfusion Medicine segments.
OCDX’s growth by region was 18% in The Americas and 12% in Greater China.
However, supply chain disruptions have caused shortages of components and inflation in freight and logistics, which has ‘pushed back delivery of our instruments’ to some customers.
This has resulted in a reduction of its Q4 installed base growth, which was 5% to 3% as opposed to the projected 5%.
Its financial results show that Q4 recurring revenue increased by 6% due its strength in clinical chemistry and immunoassay segments.
In constant currency, the total revenue for 2021 grew by 14% compared to 2020. Notably, the gross profit for the year was 50.7%. This is a 210-basis point increase, mainly due to currency conversion, volume and lower manufacturing cost.
In December 2021, Ortho and Quidel AnnouncementThe planned acquisition of Ortho was completed at a price of $24.68 per share using a combination stock and cash. This was 25% more than Ortho’s closing price the day before the announcement.
Ortho’s stock has fallen to $17.20 since then. This represents a drop of almost 20% in price, which erases the premium Quidel had to pay.
Quidel’s stock has fallen 43% since the announcement, in part due the dilution of the purchase price.
It appears that the acquisition deal must be approved by the Russian government, which, if true, could slow down the process.
OCDX will probably be subject to even more inflation pressures from the soaring gasoline price as a result. Brent crude oil is already at $130 per barrel, and it is rising fast.
OCDX has had a strong and growing gross margin, but it may face greater challenges in the future when it operates in a European or Russian environment.
OCDX’s near future is uncertain because of the approval hold that could be placed on the acquisition and the sharp drop in Quidel stock prices.
These uncertainties are why I consider OCDX to be a Hold at around $17.20.
