December 17, 2003 Digene Corp. (DIGE)
Hello Friends! Thanks again for stopping by. As you may note from the previous post...the post just UNDER this post...I purchased 150 shares of Digene (DIGE) a few minutes ago at $38.02. DIGE is having a nice day, and currently as I write is trading at $37.99, up $3.65 or 10.63% on the day. As ALWAYS, please check with your financial advisors before making any investment decisions based on information on this website as it may or may not be suitable for you.

Anyhow, according to money.cnn.com, Digene "...develops, manufactures and markets proprietary DNA and RNA testing systems for the screening, monitoring and diagnosis of human disease." What pushed the stock higher was a report from Thomas Weisel, that was picked up by Yahoo.com, indicating that Kaiser of California (The big managed care organization) will "...begin offering DIGE's DNAwithPap as a primary screen to patients 30 and older beginning Jan 1, 2004.....and firm thinks that Kaiser could generate $6-$10 mln in annual rev, resulting in $0.08-$0.12 to DIGE's bottom line..."

Looking for the latest quarterly earnings report that has been reported, I found the first quarter 2004 report that was picked up by Yahoo.com and reported on PRNewswire-FirstCall. Total revenues for the quarter ended September 30, 2003, increased 55% to $19.6 million compared to the same quarter a year earlier which was at $12.6 million in revenue.
Gross margin on product sales "...rose to 83% from 74% in the same quarter last year. Net income for the quarter was $0.7 million, or $.03 per diluted share, compared to net loss of $2.6 million, or $.14 per diluted share in the fiscal 2003 first quarter."

Looking at Morningstar.com, we find a steadily improving revenue picture with $17 million reported in 1999, $23 million in 2000, $34 million in 2001, $49 milliion in 2002, and $63 million in 2003. At the current quarter's revenue rate extrapolated would get us to about $80 million in revenue for 2004 and that is without any sequential improvement from the first quarter!

Earnings, unfortunately, have been negative up to this quarter: ($.65) in 1999, dropping to ($.24) in 2003. Free Cash Flow has also been negative but improving with $5 million in 2001, dropping to ($10) million in 2002, and ($6) million in 2003.

According to Morningstar.com, the balance sheet looks excellent with $34.3 million in cash, more than enough to cover BOTH the current liabilities of $17.8 million and the long-term liabilities of only $2.6 million. In addition, DIGE has another $19.6 milllion in other current assets reported.

Looking at "Key Statistics" on the Yahoo Finance site, we find that DIGE has a market cap of $713.57 million. There is NO trailing p/e because of the previous LOSSES, however the forward p/e is 43.47, and the PEG is at 1.85. Price/sales is also rich at 9.17. So the stock is not a bargain stock.

Currently there are 18.73 million shares outstanding with 13.40 million of them that float. In addition there are 1.24 million shares out short representing 9.25% of the float or 3.379 trading days of activity as of 11/10/03. This is DOWN from 1.76 million shares out short the prior month. No dividend is paid and no stock dividend has been declared according to Yahoo.

I like this stock a lot. In fact I like it so much I "married it!" and bought 150 shares for my trading portfolio. What do I like about this stock? Well for one thing, this appears to be a biotech firm with a product that is in great demand...an advance on the Pap test for women testing for cervical cancer. Presumably, there are many other applications for this. Having Kaiser as a customer suggests that this product is cost-effective and attractive to a large California HMO.

In addition, they are now profitable, have a 5 year record of improving revenue, and a beautiful balance sheet with lots of cash on hand. I would like to see them stay profitable and demonstrate free cash flow.

Thanks again for stopping by and please feel free to comment RIGHT HERE....(won't someone break the ice?) or drop me an email for any questions, comments, or words of encouragement!

Regards!

Bob