Orchid Cellmark, Inc. (ORCH) is a leading provider of DNA testing services for forensic, human identity and agricultural applications in the U.S. and the U.K. The company is also the world's largest provider of scrapie susceptibility genotyping.

The company recently expanded its reach in the U.S. with the acquisition of Reliagene in October 2007. The company is now leveraging its expertise in DNA testing to enter into new markets like pork traceability, immigration testing and security applications. The company has won a major part of the mega tender in the U.K. which will result in annual revenues of $10 million for the next three years.

We maintain our Buy rating on Orchid Cellmark with a price target of $6. The company is leveraging its expertise in DNA-based testing to enter new markets like security applications, pork traceability and immigration testing.

Going forward, we expect the company to garner a significantly larger chunk of the market share in the areas where it currently offers its DNA-based testing services. The higher penetration will be facilitated by growing awareness among people about the validity of DNA testing along with the company's established reputation and brand.

Recent market conditions have left the stock trading close to its 52-week low. Given the company's cash position and our expectations for the company to post profitability in 2009, we believe that the stock is trading at very cheap valuations. We believe it is the right time to accumulate the stock of Orchid as we anticipate significant appreciation in the stock price in the coming quarters.

We arrive at our target price of $6 by applying a P/S multiple of 3.9x to 2011 revenue of $96 million, discounted back at 25 per cent for three years. Our model assumes shares outstanding of 32 million in 2011.

Varun Parwal contributed to this report.