Monday, March 26, 2007

Calls of Note Part 6

- CIBC's Amit Hazan has some interesting comments on Digene (NASDAQ:DIGE) following news that BEC plans to acquire BSTE for $85/share (a 55% premium). CIBC feels the uncanny similarities between the Biosite and Digene stories are important to learn from, and they see the long-term acquisition value inherent in DIGE at a time when the diagnostic space has become very acquisitive.

BSTE had a virtual monopoly on the BNP diagnostic space until competition entered during 2003-06 (Bayer, Roche, Abbott, Dade, JNJ, DP). While the stock succumbed to competitive noise on more one occasion, the weakness proved to be a buying opportunity time and time again.

DIGE is stronger than BSTE on almost every metric today, has a stronger market position than BSTE ever did (mainly due to IP), and won't have competition until '09-'10. If one extrapolates the BSTE acquisition multiple, the value in DIGE today becomes quite evident.

BSTE is being acquired for 4.8x TTM sales, 4.5x '07E sales, and 4.2x '08E sales. These multiples on DIGE imply a takeout of $49/share on '07E sales (+24%) and $56 on '08E sales (+40%). No analogy is perfect, but investors should know their med device history and be prepared for a repeat.

Maintains Sector Outperformer and $58 tgt on DIGE.

Notablecalls: While I usually refrain from posting comments during the trading day, I think
the work Amit Hazan has done on DIGE is just too important to ignore. Please see archives for further color on the stock.

1 comment:

mdawsz said...

How do you get your hands on so much research? Are you a trader? Do you have an about section on your blog? I don't mean to be a pest but I'm curious. Your stuff is fun to read; in my mind reading your blog goes like this: Step 1) read what the analyst says, then Step 2) for a moment of clarity read what 'notable calls' has to say.