It isn’t very often that you see a stock get positive signals across the board on, but that is exactly what we see on Meridian Bioscience (VIVO) at this time. The company has strong fundamentals, the stock is in an upward trend, the stock isn’t overvalued, and there is a sense of pessimism toward the stock.

Meridian is a life science company that develops, manufactures, distributes, and sells diagnostic test kits primarily for gastrointestinal and respiratory infectious diseases, and elevated blood lead levels worldwide. The company operates through Diagnostics and Life Science segments.

The current global health crisis has boosted Meridian’s earnings and revenue. The company reported fiscal first-quarter 2021 earnings on February 5. Earnings jumped 550% compared to Q1 2020. That is considerably better than the average EPS growth for the last three years which is 19%. Earnings are expected to grow by 58% for the year.

On the revenue side, Q1 showed a jump of 96% compared to the same period a year earlier and that also was much better than average annual growth rate. Over the last three years revenue has increased by an average of 8% per year. Revenue is expected to increase by 27.9% in 2021.

The only negative for Meridian is that growth isn’t expected to be as strong beyond 2021.

Meridian is Cheaper than Most Stocks Based on Almost Every Value Metric

Looking at the different metrics for valuing a stock, Meridian scores very well across the board. There were five in particular that stood out to me. The trailing P/E is lower than the average stock at 14.37 and the forward P/E is only 13.46. If you compare those figures to the sector, they are both more than 50% lower than the average.

The price-to-sales ratio is at 3.32 on a trailing basis and 3.06 on a forward basis. Once again, these figures are much lower than the average stock and much lower than the sector average. The price-to-book ratio is 3.58 and is also lower than the average, both overall and sector averages.

Meridian scores above average in a number of profitability categories as well. The profit margin is 23.5% and the return on equity is 29.5%. The return on capital is 18.3% and the return on assets is 16.5%.

The Stock Just Bounced Off of a Trend Line that Connects the Lows of the Past Year

Turning our attention to the weekly chart we see that Meridian has been trending higher over the past year. If we connect the lows from March and November, we get a trend line that is just above the $20 level. The stock dropped down to the trend line last week before jumping sharply this week.

Since bottoming last March, the only big pullback occurred in July and August. That drop caused the stock to get within range of its 50-week moving average, but it never dropped below the trend line. That drop did cause the weekly stochastic indicators to drop into oversold territory before turning higher. The recent decline has moved the stochastic indicators back below the 50 level since November. The 13-week RSI dropped down to the 50 area and that is an area that has only been breached once in the past year—also during the August decline.

Beyond 2021 and the COVID Pandemic

It appears that investors are discounting the growth possibilities for Meridian Bioscience once the current pandemic is over. The revenue figures for 2022 show that analysts expect the company’s sales to drop 5.4% while earnings are expected to decline by 22%. Granted it will be difficult to match the huge numbers being posted in recent quarters, but the company isn’t resting on its laurels.

Meridian just announced a new product last week. The Air-Dryable Direct DNA qPCR Blood Mix is designed to aid in the manufacturing of room-temperature molecular diagnostic testing. According to Morey Setareh, Ph.D., Sr. Director Sales & Marketing for Meridian, “The Air-Dryable Direct DNA qPCR Blood is designed to tolerate a high level of inhibitors present in blood, allowing for the development of simpler and faster assays. With Meridian’s new air-dryable technology, assays can now be oven-dried on site, saving manufacturers’ time and cost, as well as allowing them to control their entire manufacturing workflow.”

The new product is expected to aid in the testing for different types of cancers. The National Cancer Institute (NCI) has predicted that cancer deaths will spike over the next decade. It believes missed screenings and delays in diagnosis, due to the COVID-19 pandemic, will cause tens of thousands of additional deaths. Meridian’s Air-Dryable Direct DNA qPCR Blood Mix will allow for faster and more accurate early cancer detection.

The new product should help keep Meridian on pace for solid earnings and revenue growth over the next five to 10 years. It might not boost earnings and revenue as much as the respiratory products have in the past year, but it gives the company a new avenue for income generation.

Mixed Messages from Analysts

Seeking Alpha shows three analysts covering the stock and there have been three earnings revisions in recent months, meaning all three have revised their EPS estimates upward in the last three months. Normally, as a contrarian, I would be concerned about too many upward revisions setting the bar too high. But in this case, we’re only talking about three analysts.

I also checked the analysts’ ratings on Yahoo Finance and they show seven analysts covering the stock, but none of them have Meridian rated as a “buy”. There have also been two downward revisions in the last 30 days. This helps balance things out from the three upward revisions.

Meridian isn’t scheduled to report second-quarter results until the beginning of May, so there is still plenty of time for more revisions. The company blew away EPS estimates in the second and third quarter of 2020. It missed in the fourth quarter and then beat again in the first quarter. The miss in August is what triggered the selloff last summer.

Right now the EPS estimate for the second quarter calls for a jump of over 100% compared to Q2 2020. The consensus estimate is $0.48 and last year’s actual results were earnings of $0.23 per share. For Q3 the consensus estimate shows a decline, from $0.55 down to $0.32.

If Meridian were to beat its EPS estimate and issue better guidance for Q3, the stock could easily surpass the former high in the $30-$31 range. I can see the stock rallying by over 60%-70% from the recent low and it could do so in two to three quarters. This outlook is based on the move from the August low through the end of the year. Another rally of this magnitude would put the stock in the $32-$34 range.