Oncology And Women's Health Will Flourish With AI

Key Takeaways

• Growing adoption of oncology and women's health tests, supported by expanding reimbursement, clinical trial momentum, and favorable demographic trends, drives sustained revenue potential.
  
• Investments in automation and AI increase operational efficiency and margins, while better payer coverage and cash collections strengthen profitability and cash flow.
  
• Rising innovation, regulatory, and competitive pressures threaten Natera's growth, margins, and profitability despite ongoing investment and recent top-line gains.

Catalysts

A diagnostics company, provides molecular testing services worldwide.

• Rapid expansion in adoption of Natera's oncology tests, especially Signatera, is evidenced by record new patient starts, accelerating sequential growth, and market penetration still in the low single digits; as Medicare reimbursement expands to additional cancer types over the next 12–18 months, this can unlock $250–300 million in incremental annual revenue and boost margins.
  
• The company is leveraging a robust pipeline of clinical trials (over 100 underway), ongoing positive readouts, and investment in groundbreaking categories like early cancer detection and AI-driven diagnostics; these initiatives set the stage for materially higher revenue streams and improved operating leverage as category-defining products come to market.
  
• Aging populations and rising global cancer and maternal health needs amplify long-term demand for Natera's advanced, non-invasive genomics solutions, underpinning sustained volume and revenue growth for both oncology and women's health portfolios.
  
• Strategic investments in automation and AI are already yielding operating efficiencies by decoupling headcount from test volumes, enabling further improvements in gross margins and creating $200 million in potential cost savings over time.
  
• Strengthening payer coverage and consistent improvement in average selling prices (ASPs), combined with faster cash collections and reduced days sales outstanding, are driving margin expansion and enhanced cash flow, positioning Natera for sustained earnings growth even as operating expenses remain stable.

Natera Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Natera's revenue will grow by 15.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -12.9% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $108.6 million (and earnings per share of $0.66) by about August 2028, up from $-253.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $442.3 million in earnings, and the most bearish expecting $-239 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 373.9x on those 2028 earnings, up from -85.9x today. This future PE is greater than the current PE for the US Biotechs industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Natera Future Earnings Per Share Growth

Risks

• Rapid technological innovation and increased investment in AI-driven diagnostics or at-home genetic testing could disrupt traditional lab-based offerings, threatening Natera's market share and potentially leading to long-term revenue and earnings pressure.
  
• Persistent high R&D, heavy clinical trial spending (e.g., over $150M in breast cancer trials alone), and ongoing investment in commercial infrastructure may constrain operating leverage and keep net margins and profitability under long-term pressure despite top-line revenue growth.
  
• Intensifying competition from both established and emerging diagnostics players-with differentiated technology or deeper strategic alliances-could erode Natera's market share, limiting long-term revenue growth and placing pressure on pricing and margins.
  
• Changes in reimbursement policy or heightened payer/government scrutiny could reduce reimbursement rates or place caps on covered tests, directly impacting average selling prices (ASPs), gross margins, and limiting Natera's addressable market.
  
• Escalating regulatory or data privacy scrutiny, both in the US and internationally, could increase compliance costs and hinder global expansion, impacting long-term growth trajectories and potentially reducing future revenue and operating margins.

Valuation

• The analysts have a consensus price target of $198.579 for Natera 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 $255.0, and the most bearish reporting a price target of just $37.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $108.6 million, and it would be trading on a PE ratio of 373.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $158.44, the analyst price target of $198.58 is 20.2% 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.