Affymetrix Retained at Neutral - Analyst Blog
23 November 2011 - 11:45PM
Zacks
We reaffirm our Neutral rating on
genetic products maker Affymetrix (AFFX) following
its lackluster third-quarter fiscal 2011 results. Its loss per
share for the quarter was higher than the Zacks Consensus
Estimate.
Sales declined at a double-digit
bracket, hit by lower product revenues and an uncertain academic
funding environment, and also missed the
Zacks Consensus Estimate. The California-based company witnessed declines in
consumable and instrument sales in the quarter, resulting in a
15% decline in product revenues.
Both DNA and RNA sales declined in
the third quarter. Despite lower revenues, gross margin improved
year over year benefiting from lower material costs and a favorable
mix.
Affymetrix is a leading provider of
microarray-based products and services to the global research
community. Along with Illumina Inc. (ILMN), it is
one of the two major providers of microarray technologies primarily
used in the field of genetic research. Affymetrix holds a leading
position in the gene expression products and services market.
Affymetrix is expanding its
customer base through new product launches and strategic alliances.
During the third quarter, the company unveiled the innovative
Cytoscan HD platform for cytogenetic analysis. Also, the company
broadened its Axiom genotyping platform with the launch of the
Axiom Genome-Wide Pan-African Array for studying diseases and
characterizing the genetic basis of diseases in Africans and
African Americans.
Moreover, Affymetrix is pursuing a
number of strategies (including expansion into new markets) aimed
at expanding its top line. The company is shifting its R&D
focus from discovery and exploration markets to the faster-growing
validation and routine testing markets.
Affymetrix reckons cytogenetics and
cancer research as promising areas for expansion, representing
market opportunities of roughly $200 million and $500 million,
respectively.
During the third quarter, the
company realigned its operation into a number of business units
including gene expression, genetic analysis, life science reagents
and clinical diagnostics. The structural changes are expected
to streamline its decision-making process while improving
customer focus and accountability.
However, Affymetrix is operating in
an intensely competitive industry and faces risks associated with
lower R&D spending by its customers due to a soft economy and
government actions including budget cuts.
Affymetrix is exposed to a volatile
funding environment. The company has been beset by uncertainties
surrounding National Institutes of Health (NIH) funding. Decline in
government research grants may substantially affect the company’s
revenues. This leads us to tread with caution. Affymetrix currently
retains a Zacks #4 Rank, which translates into a short-term “Sell”
recommendation.
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