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Sniffing For Anthrax

By Gene G. Marcial

Little-known Cepheid (CPHD) has caught the eye not only of traders but also of long-term big investors. Its shares rocketed from 4 in August to 10.50 on Jan. 5. (The stock was featured in this column on Sept. 23, 2002, at 3.74.) "Despite the runup, the stock is way undervalued," says Elemer Piros of Rodman & Renshaw, who sees it at 17 in a year.

The U.S. Postal Service has signed up Cepheid to install 1,784 systems to detect anthrax at 284 mail-sorting facilities. The Postal Service will spend $75 million to $100 million annually for Cepheid's devices, which it developed with Northrop Grumman (NOC). They test the air every hour for harmful particles, notes Piros. Installation will be finished by 2006, when Piros expects Cepheid to turn profitable. Its bio-defense business alone is worth at least 10 a share, he figures.

Other Cepheid products, including clinical diagnostics for Group B Streptococcus and an antibiotic-resistance test, are worth about 7, he adds. Piros says Cepheid may also be working on a test for animal feed to halt the spread of mad cow disease, using the same technology the Postal Service approved for bio hazards. Cepheid didn't return calls. Al Kildani of C.E. Unterberg, Towbin, says $50 million to $75 million of the Postal Service's funding for bio-threat devices will go to Cepheid itself -- up from his previous estimate of $32 million to $35 million. The rest goes to Northrop. He rates Cepheid a buy for the short and long term.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. See Gene Marcial on Fridays at 1:20 p.m. EST on CNNfn's The Money Gang.

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