Zacks Bull of the Day: Affymetrix

After reporting its first profit in two years, it looks like the restructuring plan at this biogenetics company is finally working.

By Sep 3, 2013 4:33PM

Droplet Falling from Pipette into Test Tube (c) Andrew Douglas, Radius Images, Getty ImagesBy Neena Mishra


After an unexpectedly strong second quarter, earnings estimates have been rising for Affymetrix (AFFX), sending the stock to Zacks Rank #1 (Strong Buy) with an "Outperform" recommendation.

About the company
Headquartered in Santa Clara, Calif., Affymetrix is a leading provider of microarray-based products and services to the global research community. The company utilizes its DNA chip technology in areas of gene expression, analysis and clinical application to help treat infectious diseases, cancer and other ailments.

Affymetrix has 1,100 employees globally and has a sales and distribution network across the U.S., Latin America, Europe and Asia.

Reports a profit after two years
On July 31, 2013, the company reported its second-quarter operating results. The quarter resulted in net income of $2.8 million, or $0.04 per diluted share, compared to a net loss of $1.2 million or $0.02 per diluted share in the same quarter of 2012. The results were substantially better than the Zacks Consensus Estimate of a loss of a penny per share. The company reported earnings for the first time since the first quarter of 2011.

Thanks to stronger revenue and control of operating expenses, the company generated $10.3 million in cash from operations. Further they also reduced their senior-secured debt by about 25%. As a result, the company ended the quarter with $44 million cash on hand.

Turnaround in the results was due to strong growth in the genetic analysis business and improvement in the expression business. The management said business strengthened in North America and Europe while Japan remained soft. It appears that the company's restructuring plan is finally working.

Positive revisions
As a result of the surprising turnaround in the operating results, analysts have revised their earnings estimates for the company in the past few weeks. Zacks consensus estimates for the current quarter and the current year now stand at $0.02 per share and $0.08 per share respectively, up from a penny-per-share loss that was forecast for each 60 days ago.

The bottom line
AFFX is a Zacks Rank #1 (Strong Buy) stock. The company also earned a longer-term Zacks recommendation of "Outperform" based on its improved prospects. Turnaround in the quarterly results suggests that the worst may now be over for the company.

The company has highly innovative products and a number of proprietary intellectual property licenses. It has so far failed to monetize on them, but new initiatives and shift of focus make it an interesting pick at this time.

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