Notable Calls

Affymetrix (NASDAQ:AFFX) is getting lots of commentary followin better-than-expected Q2 results:

- Piper Jaffray is upgrading their rating to Overweight from Neutral and raising their target to $11 (prev. $5)

Firm notes the upgrade reflects a favorable valuation, improving operational metrics and favorable revenue mix. They note the management is successfully restructuring the company's manufacturing cost base (and now turning their attention to operating expenses), the valuation (currently trading at 1.0x 2010 EV/Rev estimate) and the changing mix of business away from markets where they are less competitive (i.e. GWAS) and shifting resources toward markets that benefit Affy's products (such as pharmacogenomics). At this point, Piper believes it is far too premature to suggest Pharma budgets will suddenly strengthen or Illumina's advantage in DNA will evaporate. Rather, they see a company who is in the early stages of turning around, with an attractive valuation (despite the significant move already this year) and ample room to the upside.

Guidance: For 3Q09, Affymetrix anticipates $78M-$81M in revenue, encompassing PJ's ($80.6M) and Street consensus ($78.9M) prior estimates. They see potential upside to 3Q09 expense guidance of ($52-$53M, 55-56% GM).

- Morgan Stanley notes another quarter of stabilizing revenue trends with upside to consensus combined with solid 3Q guidance is encouraging and consistent with their recent upgrade thesis. Moreover, margin upside at both the GM and operating expense levels was also ahead of firm's expectations, and they continue to expect further news on cost cutting later in 2009, which could be a near term positive. Longer term, the success of the new product cycle and the peg array (GeneTitan) migration are the sustainable value drivers for this stock, and they remain cautious given limited visibility (particularly in genotyping) and <5% of the installed base transitioned successfully (need clear evidence of success beyond reagent rental customers)

A top and bottom line beat for a second quarter in a row will likely see the stock meaningfully higher from current levels. Maintains Equal Weight.

- JP Morgan maintains their Underweight rating saying that while new products (GeneTitan, QuantiGene assays, new genotyping system in 2H) hold potential, they do not see fundamentals improving significantly before 2010, despite a pending tailwind from NIH stimulus, and accordingly, remain cautious on shares in the near- to intermediate-term.

Notablecalls: AFFX has been a notable laggard in the genome space for quite a while, letting Illumina (NASDAQ:ILMN) kick their arse. I suspect there were some short bets made against the stock ahead of the numbers in light of warning from ILMN some weeks back. Now the shorts are on the run with Piper sponsoring the running event.

I think the stock can trade towards the $7 level and possibly higher in the n-t