Foolish Forecast: Immucor's Draining Acquisition

Blood-testing company Immucor (Nasdaq: BLUD  ) will report third-quarter 2008 financial results on Tuesday, April 1. Let's see whether investors will be the butt of an April Fool's joke, or have the last laugh themselves.

What analysts say:

  • Buy, sell, or waffle? Only four analysts cover Immucor, but their hearts are all racing for the medical-device maker; they've all rated it a buy.
  • Revenue. Sales are expected to grow 10% to $62.9 million, as the introduction of its Echo testing device continues to expand, and price increases push revenue up in the face of lower volume.
  • Earnings. Analysts expect profits to grow by a penny, to $0.22 per share. That's $0.03 lower than the original consensus on Immucor's earnings at the beginning of the quarter.

What management says:
Sometimes, it takes sacrifices today to succeed tomorrow. That may be the logic behind Immucor's purchase earlier this month of privately held BioArray Solutions, a maker of molecular diagnostic systems for DNA blood analysis. The $117 million cash purchase price is not the hardship here; Immucor has plenty of money in the bank. Instead, the deal will eat into the medical-device maker's earnings for years to come, until it can get FDA approval for BioArray's technology. It expects earnings to be diluted by $0.20 to $0.23 per share in the first year after the acquisition.

Shareholders certainly weren't enthused about the dilutive effects, bidding the stock down by almost 24% on the day. Shares had traded as low as $17.30 before rising again.

What management does:
Immucor is similarly postponing the good times in its margins, having taken small hit to its profits. As it sells more of its new Echo machines, it must record the full cost of them immediately, while the revenue recognized from them is deferred over their useful lives. Immucor sold three times as many Galileo instruments last quarter as it did the year before, and as sales ramp up, the company's margins may appear askew.

Margin

11/06

02/07

05/07

08/07

11/07

Gross

68.5%

69.1%

70.5%

71.6%

71%

Operating

39.6%

39.4%

41.4%

42.4%

41.9%

Net

25.0%

25.4%

26.9%

27.5%

27.5%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

What CAPS Fools say:
Here's how Immucor stacks up against some of its peers and competitors on Motley Fool CAPS:

Company

Market Cap (billions)

PE Ratio

CAPS Rating

Immucor

$1.5 billion

23.0

****

Bio-Rad Labs (AMEX: BIO  )

$2.4 billion

26.0

****

Johnson & Johnson (NYSE: JNJ  )

$181.8 billion

17.7

*****

Olympus

$8.2 billion

13.9

NR

Biotest

$634.1 million

20.6

NR

Millipore (NYSE: MIL  )

$3.7 billion

27.0

***

One Fool says:
It's often difficult to see how investments today can pay off tomorrow, particularly when it's forecast that tomorrow might not come for several years. In the face of a seemingly fickle FDA approval process, and the immediate presence of diluted earnings, it's not surprising that Immucor's shares have sold off.

That sort of situation spells opportunity for savvy investors, though. The market's short-term mind-set gives you an opportunity to pick up discounted stocks at bargain prices. Most of Immucor's revenue comes from the U.S., but it's expanding its presence abroad. The Galileo testing device should continue to gain acceptance in Europe, thanks to the high volume of tests it can perform. Since most European labs are open for just one shift a day (as opposed to 24-hour testing in the U.S.), Galileo's ability to perform up to 70 tests an hour should find favor internationally.

Competition remains stiff, but the sort of sell-off that occurred last week could make Immucor's shares more attractive for bloodthirsty investors.

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