NEW YORK — JP Morgan and Piper Sandler on Monday initiated coverage of Ortho Clinical Diagnostics with Overweight ratings. JP Morgan initiated coverage with a share price target of $25, while Piper Sandler initiated coverage at $27.
Further, Evercore ISI initiated coverage at $26 with an Outperform rating, and UBS initiated coverage at $23 with a Buy rating.
In a note to investors JP Morgan analyst Tycho Peterson said that the clinical laboratory business in which Ortho participates has a total addressable market (TAM) of about $24 billion, with a greater than 5 percent projected year-over-year growth, and a transfusion medicine business with a TAM of about $2 billion, with a greater than 3 percent projected year-over-year project growth.
As Ortho demonstrates stable top-line growth and margin expansion, while using free cash flow to de-leverage, JP Morgan anticipates "the discount to peers will narrow, offering upside to current levels," Peterson said.
Ortho's portfolio, which includes 17 instruments and more than 240 assays, "generates highly recurring core revenues," he added.
Piper Sandler analyst Steven Mah wrote in a note on Monday that Ortho's razor, razor-blade model provides it with 93 percent recurring revenue. In 2019, consumables contributed more than 90 percent of total revenue and about 93 percent of core revenue for its clinical laboratories and transfusion medicine products, Mah said.
Additionally, the dry-slide technology behind Ortho's IVD instruments is a proprietary product offering for clinical labs and transfusion medicine, in which the firm is the top immunohematology player, Mah noted.
He added that the aging population, increasing chronic disease, increasing global access to healthcare, and the emergence of new diseases could drive the company's long-term growth. Ortho's continued investments in R&D and product innovation, as well as instrument and test menu expansion, are additional growth drivers, Mah said.
Piper Sandler expects Ortho's revenues will rise almost 6 percent year over year in 2021 to $1.86 billion.
Ortho went public on January 28 at $17 per share. Private equity giant Carlyle Group had taken it private, acquiring Ortho from Johnson & Johnson in 2014 for approximately $4 billion.
In early morning trading on the Nasdaq, Ortho's shares were up more than 2 percent to $17.13.