Under the Radar: Bio-Reference Set to Grow - TheStreet

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Aging Baby Boomers are going to push demand for medical products and services for the next 20 years. Investors seeking a health care play should look at


poised to benefit from the trend.

Bio-Reference Laboratories


is a little-known provider of lab services with a strong track record, stable financial position and compelling growth prospects. The Elmwood Park, N.J.-based


helps medical professionals in Greater New York City detect, diagnose and monitor diseases.

The company has increased profits for 10 straight quarters. Its fiscal second-quarter revenue rose 16% to a record $87 million as net income increased 35% to $4.6 million and earnings per share climbed 32% to 33 cents. Operating margin gained two percentage points to 10% and net margin inched up to 5%.

Bio-Reference's cash balance has increased 32% to $13 million from the year-earlier quarter, which translates to a high quick ratio of 1.8. The company has kept its debt in check with only $37 million of long-term obligations on its balance sheet and just $400,000 in quarterly interest expenses. A debt-to-equity ratio of 0.3 confirms the modest leverage.

Bio-Reference has strong growth potential in women's health and genetic testing. The company runs a national lab that focuses on sexually transmitted diseases in women. Its GeneDX subsidiary, which tests for rare genetic diseases, will likely expand as scientists map the human genome and treatments become more tailored to individual patients.

With a market capitalization of about $420 million, Bio-Reference isn't a brand-name stock. It's up 15% this year, outperforming the Dow Jones U.S. Health Care Index, which includes

Johnson & Johnson

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(PFE) - Get Report

. The shares have risen 13% annually, on average, during the past three years, while the benchmark has lost 3.3%.

Consequently, Bio-Reference is no longer a cheap investment. The stock trades at a price-to-earnings ratio of about 23, which is a 65% premium to its peer group. The company also doesn't pay dividends.

Still, the firm expects to increase revenue by 15% and net income by 20% this year. We rate Bio-Reference "buy."