Shares of Meridian Bioscience Inc. edged higher Monday, partially recovering from a sharp drop last week following the diagnostic kit maker's disappointing fiscal third-quarter results.
The Cincinnati-based company on Thursday reported better-than-expected profit but sales at its life sciences business slumped and fell short of their estimates. The stock plunged 16.5 percent Thursday, and dipped 4 cents more in Friday trading.
On Monday, Hilliard Lyons analyst Stephen O'Neil upgraded the stock to "Long-term Buy" from "Neutral" due to its lower price. He thinks demand for Meridian's bacteria tests will improve and the company will continue to develop new technologies.
He maintained a price target of $35 per share. The stock added $1.57, or 6.6 percent, to $25.53 Monday.
In a telephone interview, Baird analyst Quintin Lai said Meridian's life sciences business also missed expectations in the March quarter. He said investors sold the stock when the problem repeated itself in the third quarter, but Lai does not think there is evidence of a larger problem.
He said one major customer lost market share in the quarter, and as a result, did not need to order as many proteins from Meridian.
"A million-dollar shortfall, and the stock was down 17 percent on that day. To us, that was very, very overdone," he said. "It really had nothing to do with Meridian's quality or product."
He added that life sciences is by far the smaller of Meridian's two businesses: the company reported $33.1 million in revenue for the quarter, and only $5.6 million of the total came from life sciences. The rest came from sales of diagnostic products.
Lai said he sees a number of positive developments for Meridian that outweigh the results from the life sciences unit. He noted that Meridian maintained its full-year profit and revenue outlooks, predicted growth in 2009 and said it may increase its dividend in fiscal 2009.
"That to me says that the issue surrounding life sciences is a lumpy issue, it's a one-customer issue," Lai said. "Meanwhile, the vast majority of the business is on good ground, and the company continues to find ways to improve their profitability."
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