Cutting-edge DNA Synthesis Platform And Cost Reductions Will Power Future Market Expansion

Key Takeaways

• Twist Bioscience's innovative DNA synthesis platform and strategic process improvements aim to drive revenue growth and enhance net margins.
  
• Focus on achieving EBITDA breakeven and maintaining revenue growth without additional capital points to a strong path to cash flow positivity.
  
• Twist Bioscience faces risks with achieving profitability, margin improvement reliance on technology updates, geopolitical impacts, rising competition, and uncertain biopharma service expansion.

Catalysts

Manufactures and sells synthetic DNA-based products.

• Twist Bioscience's cutting-edge DNA synthesis platform is expected to power future revenue growth as it positions the company to tap into a wide array of market opportunities, ultimately strengthening overall revenue.
  
• The company emphasizes process improvements and cost reduction initiatives, such as the use of alternative technologies for plastic tips, which are anticipated to improve net margins through lowered COGS.
  
• Twist is focused on achieving adjusted EBITDA breakeven, driven by increased gross margins and disciplined execution, which should positively impact earnings.
  
• Strategic efforts are underway to leverage proprietary enzyme development, expected to enhance gross margins by improving internal processes and product performance with minimal investment.
  
• The company's commitment to maintaining sequential revenue growth and margin improvements without raising additional capital indicates a strong path towards achieving cash flow positivity, impacting both earnings and net margins.

Twist Bioscience Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Twist Bioscience's revenue will grow by 18.7% annually over the next 3 years.
• Analysts are not forecasting that Twist Bioscience will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Twist Bioscience's profit margin will increase from -59.8% to the average US Biotechs industry of 19.3% in 3 years.
• If Twist Bioscience's profit margin were to converge on the industry average, you could expect earnings to reach $106.6 million (and earnings per share of $1.67) by about April 2028, up from $-197.3 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 39.1x on those 2028 earnings, up from -11.8x today. This future PE is greater than the current PE for the US Biotechs industry at 21.4x.
• Analysts expect the number of shares outstanding to grow by 2.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.23%, as per the Simply Wall St company report.

Twist Bioscience Future Earnings Per Share Growth

Risks

• While Twist Bioscience is focused on achieving adjusted EBITDA breakeven, there remains a risk that the company may face challenges in its path to profitability, with a current adjusted EBITDA loss of $16.3 million for the first quarter of fiscal 2025. This could impact earnings if the trajectory does not improve as forecasted.
  
• The company relies heavily on continuous improvements and cost optimization strategies, such as the use of new enzyme technologies and process improvements like changing plastic tips, to drive margin improvements. Any delays or failures in these initiatives could negatively impact net margins and financial performance.
  
• Although the company is addressing potential risks from geopolitical concerns like tariffs that could affect competitors, changes in trade policies or new tariffs impacting the U.S. market could challenge revenue growth and operational costs if not managed effectively.
  
• The market competition is increasing, with competitors launching similar products in response to Twist's Express portfolio. If competitors' offerings improve or match Twist's value proposition, this could limit Twist’s ability to capture or expand market share, thereby affecting future revenue growth.
  
• Despite robust revenue growth reported, there is potential risk in the biopharma services expansion as it showed cautious optimism with a current small revenue contribution of $5.7 million. If expected growth in this area does not materialize, it could result in lower-than-anticipated revenue diversification and growth.

Valuation

• The analysts have a consensus price target of $54.379 for Twist Bioscience 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 $62.0, and the most bearish reporting a price target of just $40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $552.9 million, earnings will come to $106.6 million, and it would be trading on a PE ratio of 39.1x, assuming you use a discount rate of 6.2%.
• Given the current share price of $38.94, the analyst price target of $54.38 is 28.4% 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.