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Cantor Fitzgerald Initiates Coverage of NeoGenomics at Overweight

NEW YORK (GenomeWeb) – Cantor Fitzgerald has initiated coverage of NeoGenomics with an Overweight rating and a price target of $11.

The investment bank said NeoGenomics' "transformational acquisition" of Clarient last year has moved the company into a leadership position in the cancer diagnostics market, "with improved economies of scale, a broadened testing portfolio, an expanded geographic reach, and ongoing relationship with GE Healthcare."

Further, Cantor analyst Bryan Brokmeier wrote in his note to investors that cost savings from the acquisition and revenues from Clarient are expected to add to NeoGenomics' top- and bottom-line growth in the near term.

NeoGenomics acquired Clarient from GE Healthcare last year in a cash and stock deal worth approximately $275 million. The agreement included $80 million in cash, $110 million in preferred stock, and 15 million shares of NeoGenomics common stock. With the closing of the transaction in December 2015, GE Healthcare now owns 32 percent of NeoGenomics.

According to Brokmeier's calculations, NeoGenomics now has an opportunity to gather $10 million to $16 million in low-hanging revenues from targeting Clarient's accounts. "NeoGenomics is initially focused on 100 Clarient accounts that are only using the company for immunochemistry, where there is an opportunity to cross-sell both higher-priced FISH and flow cytometry," he wrote. "Based on two different approaches that consider the value of those 100 accounts, we estimate that there is [a] $10 million to $16 million opportunity."

The company also has opportunities to expand its business by improving productivity, reducing operating expenses, and leveraging the "greater economies of scale," Cantor said. "We are modeling 2018 revenues … and adjusted EPS of $315.1 million … and $.33, respectively."

NeoGenomics also has positioned itself as a "consolidator of oncology diagnostic labs," Brokmeier wrote. "Outside of organic growth, NeoGenomics [is] focused on rolling up oncology labs with proprietary technologies, such as those in bioinformatics, next-gen sequencing, and companion diagnostics. NeoGenomics has the scale and an increasing physician awareness to accelerate market penetration of acquired technologies, in our view."

Cantor also noted that it believes the company will focus on tuck-in acquisitions in the coming year in the range of $20 million to $40 million, but that it has the capacity to do larger deals worth up to $105 million.

NeoGenomics' stock rose nearly 5 percent to $9.46 in Thursday morning trading on the Nasdaq.