DANIEL TAUB
Staff Reporter
After more than two months of near-flatline performance below $24 a share, the stock of Diagnostic Products Corp. inexplicably took off in mid-June on heavy volume. It closed at $30.44 on June 21 before easing back to $29.81 the next day.
So what’s behind the spike?
Analysts say they don’t know. Officials at the New York Stock Exchange, where Diagnostic Products shares are traded, asked the company if anything is in the works that might explain the surge. The response was a June 18 press release saying that company policy “is not to comment on market activity.”
Asked about the stock price last week, Diagnostic Products Chairman and Chief Executive Sigi Ziering said, “No comment.”
Such a terse response to such questions is unusual. If a sudden stock price dip or surge on heavy volume is not due to any company-related news, management typically states that it has no knowledge of anything that would cause it. Asked why Diagnostic Products did not issue such a statement, Ziering again said, “No comment.”
“The company plays it pretty close to the vest, and the company has not been commenting on what’s happening,” said Walter Geiger, an analyst at Tucker Cleary Capital Markets in Milwaukee. “We’ve heard rumors, but we don’t comment on those.”
Another analyst who covers Diagnostic Products said that while he did not know why the stock price rose, such activity often stems from deal-related speculation.
“When you see this kind of stock activity, you’re kind of thinking that someone thinks that this company is a candidate to be acquired,” he said. “(But) I have no indication of that at all. I haven’t heard any speculation with a name attached to it that it might be X, Y or Z.”
Diagnostic Products, a Westchester-based maker of medical testing kits, has some heavyweight competitors capable of sizable acquisitions.
Among them, according to the latest annual report, are: Roche Holding AG, Abbott Laboratories, Bayer AG, Johnson & Johnson and Pharmacia & Upjohn Inc. As of last week, though, none of those companies had made a public bid.
Even after the recent spike, Diagnostic Products’ stock price is not out of line with its performance, analysts said. Its price-to-earnings ratio of 20.85 is below those of the major U.S. market indexes. And the company’s bottom line has been improving.
For 1998, net income was $20.2 million ($1.46 per diluted share), compared with $18.2 million ($1.32) a year earlier. Revenues were $196.6 million, up from $186.3 million in 1997.
For the first quarter ended March 31, net income was $4.1 million (30 cents), flat from the like year-earlier period. Its first-quarter revenues were $50.4 million, up from $46.1 million.
Despite the flat performance, analysts expect overall earnings to rise this year. The consensus of analysts surveyed by First Call Corp. is that the company will generate per-share earnings of $1.60 in 1999. Ziering said Diagnostic Products doesn’t release earnings projections, but said he concurs with the projections.
“We should do better this year,” he said.
Geiger is projecting Diagnostic Products’ stock to rise to $36 over the next year, and he has an “accumulate” recommendation, his firm’s second-highest rating. Geiger added that he is especially optimistic about the recent launch of the Immulite 2000 product, a medical testing kit intended to eventually replace the company’s popular Immulite One, more than 4,000 of which have been sold worldwide.
“It’s a good company, has good technology (and is) in the process of introducing a new system, which we understand is going well,” Geiger said.
Diagnostic Products, which has more than 620 employees at its factory just east of Los Angeles International Airport, was founded in 1971, and started out making equipment for testing blood for bacterial infections, viruses and diseases. Those tests used radioisotopes and required testing to be performed by skilled technicians.
The main products today the Immolite One and Immolite 2000 are much safer and easier to use. Blood samples are put into a device attached to a computer, and testing for diabetes, reproductive disorders, cancer and other diseases and disorders is completely automated, and no longer require the use of radioactive materials, which are dangerous and difficult to dispose of.
Also being developed is a bedside device that can test for certain diseases and ailments, which would be useful in emergency rooms. Shipments of that device should begin early next year, Ziering said.
Some analysts are optimistic about the market for such a device.
“We believe over time it is an area that will become increasingly important in health care facilities,” Geiger said.
