Hospitals are taking a less traditional approach to capital spending to combat budgetary constraints as a potential pullback in funding is expected going into 2012 in the medical diagnostics arena due to reimbursement changes or health care reform, says Brian Weinstein, CFA, an Analyst at William Blair & Company, L.L.C.
“What we are seeing is the more forward-thinking hospitals at this point are actually thinking about costs in a holistic way. If I spend money in my lab to bring on a test using a system that I have to pay for, do I therefore accrue savings outside of the lab and make things more profitable for the hospital?” Weinstein said.
Weinstein recommends Cepheid (CPHD), a medical diagnostics company which designed a system for savings in hospital capital spending outside of the lab. CPHD was put down as the best idea for 2011, and he says it offers best-in-class technology, which has led to a significant installed base, and the company is moving into profitability.
“We are seeing good gross margin expansion. That, we think, is going to allow the company to get to 65% to 70% gross margins, which would be kind of a normal diagnostic margin, with 30% operating margins over the next couple of years. You are starting to see some significant profitability that we think will start to come through for these guys,” Weinstein said.
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