Meridian Bioscience Stock: Correctly Valued (NASDAQ:VIVO)

Meridian Bioscience (NASDAQ:VIVO) is a fully-integrated developer of diagnostic systems through its diagnostics segment, and through its life sciences segment, it is a bulk manufacturer of antigens, antibodies, and other diagnostic material used by labs and researchers.

Diagnostic segment

The company’s product portfolio comprises around 200 diagnostic tests and transport media. Meridian has a footprint in over 70 countries around the world, where it sells its diagnostic products to acute care hospitals, reference laboratories, outpatient clinics and physician office laboratories.

These products include: Real-time PCR Amplification (Revogene brand); Isothermal DNA Amplification (Alethia brand); Lateral Flow Immunoassay using fluorescent chemistry (Curian brand); Rapid Immunoassay (Immuno Card and Immuno Card STAT! brands); Enzyme-linked Immunoassay (PREMIER brand); Anodic Stripping Voltammetry (LeadCare brands); and urea breath testing for H. pylori (BreathID and BreathTek brands).

In the pipeline they have expansion indications for Curian and Revogene platforms, including a 510(K) application for the Curian Campylobacter assay. Other candidates in their pipeline include gastrointestinal and respiratory multiplex assays (Revogene), and EHEC Shiga Toxin and C. difficile combo common antigen and Toxins A and B (Curian).

Life sciences segment

In this segment, the company manufactures bulk antigens, antibodies, immunoassay blocking reagents, specialized PCR mastermixes, isothermal reagents, enzymes, nucleotides, and bioresearch reagents. These are sold to companies that manufacture in vitro devices, as well as to researchers in human, non-human, food, and environmental fields.

Impact of covid-19

Before 2020, Meridian was a small company with an unpredictable earnings growth statistic. Some quarters, it grew by a small percent – never more than 10-11%, generally in single digits; and in some quarters it actually fell below the same quarter of the previous year.

Then suddenly, in Q2, 2020, it rose 14% over Q2, 2019. This was the quarter the pandemic began, and the earnings were from the 3 months prior to that. However, already there was a decided impact on Meridian. As the company said:

The pandemic accelerated the need to develop assays quickly measured in weeks and not months. R&D scientists turned to our ready-made qPCR master mixes to accelerate their development timelines. Meridian’s master mixes became extremely popular due to their performance and our ability to quickly supply the large quantities that were required. The pandemic unfolded there were shortages of RNA extraction kits necessary to process patient samples. In response, our team developed the first commercially available inhibitor tolerant mix that did not require RNA extraction. That means you can take the patient sample direct to the assay without further extraction steps.

Then in Q3, 2020, earnings jumped 75% over Q3, 2019. This was the first full quarter of the full-blown, lockdown inducing pandemic. This was the quarter when every healthcare stock fell. This was also the quarter when Meridian saw its first major jump. The company made $84mn in earnings that quarter.

The next three quarters went similarly – 26%, 96% and 49%. Those were the days of full-scale pandemic, and Meridian continued growing. It was only in Q3 2021 that they saw a 25% fall in revenue over Q3 2020; even then, it was still almost 50% higher than Q3 2019, the year before the pandemic. Q4 2021 was decent, an 18% rise over Q4 2020, which wasn’t a great quarter itself in terms of the pandemic-fueled growth. Finally, we have Q1 2022, which saw a negative 4% growth, however we need to remember that Q1 2021was the quarter that saw that humongous 96% growth, or $93mn in earnings; so, making $88mn in Q1 this year even after the pandemic has gone down considerably is a remarkable achievement.

Future prospects

Indeed, this is a remarkable achievement because it tells us that while the pandemic gave a boost to Meridian’s business, it may not go down altogether to pre-pandemic numbers once the pandemic subsides. If that were so, it does not explain how Q1 2022 had almost the same earnings – when the pandemic is ebbing – as Q1 2021, which was the quarter we had the delta variant. It does appear that Meridian has found a way to move up with the pandemic but not move down with it. As the company says, covid-19 has become endemic, and earnings will move after the respiratory season quarters.

The other interesting thing is that it is wrong to assume that the pandemic is going away. SARS-COV2 is here to stay, and the market that’s been created for Meridian may be quite long lasting.

How is it, then, one may ask, that small-time vaccine makers are seeing a fall in prospects as the pandemic becomes easier to manage? Truth is, SARS-COV2 is, at least in some quarters today, somewhat more easily manageable; and a large part of the population is anyway double vaccinated. There are fewer takers for booster doses, perhaps; however, diagnostics is still a large market because a sudden onset of symptoms still needs testing. Thus, Meridian has found a market that’s going to be durable.

Bottom line

So, should we buy Meridian? The stock is trading at its all-time highs, and while I did say their earnings may not go down substantially, these are still their best few years. That means Meridian is a highly valued stock right now, and the prices are just about right. If I want to invest, I will have to look for any unusual and fundamentally flawed fall in prices.