QuidelOrtho (QDEL)

Healthcare diagnostics company QuidelOrtho (NASDAQ:QDEL) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 2.6% year on year to $692.8 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $2.71 billion at the midpoint. Its non-GAAP profit of $0.74 per share was 25% above analysts’ consensus estimates.

Company Overview

Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ:QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.

The medical devices and supplies industry, particularly those specializing in imaging and diagnostics, operates with a comparatively stable yet capital-intensive business model. Companies in this space benefit from consistent demand driven by the essential nature of diagnostic tools in patient care, as well as recurring revenue streams from consumables, service contracts, and equipment maintenance. However, the industry faces challenges such as significant upfront development costs, stringent regulatory requirements, and pricing pressures from hospitals and healthcare systems, which are increasingly focused on cost containment. Looking ahead, the industry should enjoy tailwinds from advancements in technology, including the integration of artificial intelligence to enhance diagnostic accuracy and workflow efficiency, as well as rising demand for imaging solutions driven by aging populations. On the other hand, headwinds could arise from a rethinking of healthcare costs potentially resulting in reimbursement cuts and slower capital equipment purchasing. Additionally, cybersecurity concerns surrounding connected medical devices could introduce new risks and complexities for manufacturers.

QuidelOrtho competes with several major players in the diagnostic testing market, including Abbott Laboratories (NYSE:ABT), Roche (OTC:RHHBY), Thermo Fisher Scientific (NYSE:TMO), Danaher (NYSE:DHR), and Siemens Healthineers (OTC:SMMNY).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $2.76 billion in revenue over the past 12 months, QuidelOrtho has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, QuidelOrtho’s sales grew at an excellent 23.3% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. QuidelOrtho’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.7% over the last two years.

QuidelOrtho also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 8.9% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that foreign exchange rates have boosted QuidelOrtho’s performance.

This quarter, QuidelOrtho reported a rather uninspiring 2.6% year-on-year revenue decline to $692.8 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 1.3% over the next 12 months. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

QuidelOrtho was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.9% was weak for a healthcare business.

Looking at the trend in its profitability, QuidelOrtho’s operating margin decreased by 40.8 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 16.5 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, QuidelOrtho generated an operating profit margin of 4.7%, up 252 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for QuidelOrtho, its EPS declined by 8.1% annually over the last five years while its revenue grew by 23.3%. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into QuidelOrtho’s earnings to better understand the drivers of its performance. As we mentioned earlier, QuidelOrtho’s operating margin improved this quarter but declined by 40.8 percentage points over the last five years. Its share count also grew by 55.5%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, QuidelOrtho reported EPS at $0.74, up from $0.44 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects QuidelOrtho’s full-year EPS of $2.15 to grow 19.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

QuidelOrtho has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.8% over the last five years, better than the broader healthcare sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that QuidelOrtho’s margin dropped by 20.1 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although QuidelOrtho hasn’t been the highest-quality company lately because of its poor bottom-line (EPS) performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 17.5%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, QuidelOrtho’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

QuidelOrtho reported $127.1 million of cash and $2.66 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $570.7 million of EBITDA over the last 12 months, we view QuidelOrtho’s 4.4× net-debt-to-EBITDA ratio as safe. We also see its $102.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly QuidelOrtho blew past analysts’ EPS and EBITDA expectations this quarter. On the other hand, its full-year EPS guidance and constant currency revenue fell short of Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 7.6% to $27.79 immediately after reporting.

Updated: July 10, 2025 at 11:40 PM EDT

When considering an investment in QuidelOrtho, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

QuidelOrtho falls short of our quality standards. To kick things off, its revenue has declined over the last five years. And while its impressive operating margins show it has a highly efficient business model, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

QuidelOrtho’s P/E ratio based on the next 12 months is 12.3x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $47.14 on the company (compared to the current share price of $31.70).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.