Chembio’s COVID-19 Test Could Separate It from the Rest of the Pack, Says Analyst and Reiterates Buy

With a large number of companies hoping to bring a viable COVID-19 test to market, how does one differentiate itself? A nod from the FDA helps.  

Last week, Chembio Diagnostics’ (CEMIDPP (Dual Path Platform) COVID-19 serology test was granted emergency use authorization (EUA) by the FDA. The company’s potential to deliver a reliable test has driven impressive gains for the stock in 2020Chembio’s share price has appreciated by a massive 166% year-to-date. 

Accordingly, Canaccord Genuity’s Max Masucci reiterated a Buy recommendation on Chembio and bumped up the price target – lifting it from $10 to $12With CEMI having added 50% over the past week, it has already soared beyond the analyst’s target; the figure reflects downside of 1%. (To watch Masucci’s track record, click here) 

In a crowded space with over 70 competitors hoping to gain market shareChembio is only the third to receive emergency use authorization for its serology test. Both other companiesCellex and Ortho Clinical Diagnostics, are privately held. According to Masucci, the former’s test has reported 93.8% sensitivity and 95.6% specificity, while the latter’s data has not been released. 

We have not seen CEMI’s DPP COVID-19 performance data, but we note that CEMI’s DPP HIV ½ assay delivered 99.8% sensitivity and 100% specificity in its WHO evaluation. We are unsure whether CEMI’s DPP COVID-19 test can replicate these same levels of sensitivity/specificity, but in a broader sense, we expect the superior performance to carry over, said Masucci. 

With the stakes so high, the importance of the test’s accuracy cannot be overstated. Concerns have been raised regarding the quality of imported tests, which have been repackaged and resold in the US. The 5-star analyst believes the FDA’s decision regarding Chembio’s offering reflects highly on the company, yet its possible impact on the balance sheet is not clear just yet. 

We see FDA EUA as a line in the sand between reliable serology tests and the (expected) large number of low performing or dysfunctional tests that may enter the market… We are positive on the announcement, which we think further legitimizes CEMI’s COVID-19 revenue opportunityThat said, there is still uncertainty around the level of revenues CEMI may drive from the sale of this test, and we look to learn more in the coming weeks,” Masucci explained.  

Out on the Street, only one other analyst has thrown the hat in with a view on Chembio’s long-term prospects. The additional Buy rating provides CEMI with a Moderate Buy consensus rating. The average price target is $9.50 and following the recent surge, represents possible downside of 22%. If the stock keeps outperforming, expect readjustments to the analysts’ modelshortly. (See Chembio stock analysis on TipRanks) 

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