Medicare Coverage Of Reveal And Shield's FDA Approval Will Expand Market Reach

Key Takeaways

• Achieving ASP goals and expanding Medicare coverage will drive revenue growth through higher pricing and increased test volumes.
  
• Cost reduction efforts through technological transitions will improve net margins, enhancing the company's financial performance.
  
• Uncertain reimbursement negotiations and heavy reliance on non-GAAP measures create unpredictability and risks impacting stock performance and revenue growth.

Catalysts

A precision oncology company, provides blood and tissue tests, and data sets in the United States and internationally.

• The company achieved its ASP goal for Guardant360 four years ahead of schedule due to reimbursement wins, which will positively impact revenue by offering higher pricing and faster payment from commercial payers.
  
• The upgrade to the Guardant360 Liquid platform with expanded gene coverage and improved tumor detection sensitivity is driving increased test volumes and frequency, likely boosting revenue growth.
  
• The launch of Shield, Guardant's first FDA-approved and Medicare-covered blood test for CRC, is expected to tap into a large market and improve Shield's gross margin, eventually impacting earnings.
  
• The recent Medicare coverage for Reveal in CRC surveillance and expected further expansion in indications like breast cancer could drive volume growth, positively impacting revenue.
  
• Cost reduction efforts for Reveal, credited to transitioning onto the Smart Liquid Biopsy platform, are expected to significantly save costs and improve net margins by making the test gross margin positive.

Guardant Health Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Guardant Health's revenue will grow by 20.3% annually over the next 3 years.
• Analysts are not forecasting that Guardant Health will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Guardant Health's profit margin will increase from -59.0% to the average US Healthcare industry of 4.9% in 3 years.
• If Guardant Health's profit margin were to converge on the industry average, you could expect earnings to reach $63.2 million (and earnings per share of $0.5) by about April 2028, up from $-436.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 135.9x on those 2028 earnings, up from -11.3x today. This future PE is greater than the current PE for the US Healthcare industry at 23.4x.
• Analysts expect the number of shares outstanding to grow by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Guardant Health Future Earnings Per Share Growth

Risks

• The issuance of forward-looking statements with material risks and uncertainties could lead to actual results differing from expectations, impacting earnings and stock performance.
  
• Heavy financial reliance on non-GAAP measures masks potential one-time revenue boosts and significant litigation expenses, creating unpredictability in net margins.
  
• Future revenue growth hinges on successful reimbursement negotiations and Medicare approvals; failure in expanding commercial payer coverage could limit revenue potential.
  
• The company's cash burn, particularly from Shield's scaling, affects its overall cash flow, possibly delaying free cash flow breakeven and impacting net income.
  
• Dependence on partnerships with biopharma and international expansion presents execution risks that, if unmet, could result in lower-than-anticipated revenue growth.

Valuation

• The analysts have a consensus price target of $56.85 for Guardant Health based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $65.0, and the most bearish reporting a price target of just $47.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $63.2 million, and it would be trading on a PE ratio of 135.9x, assuming you use a discount rate of 6.2%.
• Given the current share price of $39.81, the analyst price target of $56.85 is 30.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.