- Banc of America is very positive on Orchid Cellmark (NASDAQ:ORCH) calling it their Best Small Cap Idea after ORCH management agreed to participate in two days of investor meetings. This comes on the heels of the sell-off in the stock after the company reported in line EPS on lower revenues, the esults reflected a drop off in scrapie testing volumes, but the weaker stock price was unwarranted in BAC's view, given signs of a pick up in its forensics business in the latest period, as well as ongoing profit improvement and positive cash flow generation. Still, given the performance of the stock under prior management, which torched investors and analysts alike for two consecutive years, a cautious view by investors is somewhat understandable.

Under CEO Tom Bologna, who assumed control of the company in 1Q06, ORCH is now well-positioned for accelerating EPS growth, which they believe is underappreciated by investors currently.

In firm's view, ORCH will become a household name when 'all arrestee' testing becomes a reality at the state level, which could increase the market opportunity by more than five times. (The U.K. collects DNA evidence from 85% of burglary crime scenes, while the U.S. only collects DNA-based evidence from less than 5% of similar crime scenes.) Only about 7 states currently have all arrestee testing in place, including California, but more than 20 plan to introduce bills in 2008.

All told, they view it as likely that organic growth for the forensics business could be twice as high as an estimated 5% currently, which should fuel accelerating EPS growth. Anyone perceiving the opportunity has few opportunities short of buying ORCH to play, given the companies efforts to roll up a still immature market.

Buy, $8 tgt.

Notablecalls: BAC's Robert Willoughby seems to have lots of conviction when it comes to ORCH. The stock was among firm's five portfolio picks in 2007 and the analyst notes that while it's up 47.7% year to date (vs. 4.4% for the S&P 500), they can't help but be a little disappointed that the performance has not been better.

While I'm not too familiar with the name here, there looks to be a strong story supporting it. It's one of the calls that makes you want to buy some stock for a L-T hold. Definitly worth a closer look.