Precision Medicine Growth Will Create New Global Opportunities

Key Takeaways

• Accelerating adoption of core diagnostic tests and global expansion position Veracyte for sustained, above-consensus revenue growth and increased market penetration across oncology segments.
  
• Technological advances in sequencing, automation, and data platforms are set to drive substantial margin gains, enable reinvestment, and open new, high-value recurring revenue streams.
  
• Heavy reliance on a few core products and increasing pricing pressures leave future growth and profitability vulnerable to regulatory, competitive, and market adoption risks.

Catalysts

Operates as a diagnostics company in the United States and internationally.

• Analysts broadly agree that Decipher and Afirma are driving double-digit growth through increased adoption, but current projections may understate upside: accelerating market penetration for Decipher, with management targeting an 80% penetration rate versus 40% current, could sustain exceptional 20%+ revenue growth for years, especially as Decipher now uniquely covers the full prostate cancer care continuum and is rapidly winning new provider accounts.
  
• The consensus expects margin improvement from automation and newer sequencing platforms, yet this likely underestimates the transformative potential of Veracyte's shift to the NovaSeq X and V2 transcriptome; ongoing cost reduction in sequencing/library prep and a unified, scalable diagnostics platform could drive gross margin expansion far beyond expectations, enabling simultaneous reinvestment and sustainable EBITDA improvement.
  
• The expansion into minimally invasive, whole-genome MRD (minimal residual disease) testing-leveraging Veracyte's extensive installed channel in urology and oncology-can unlock entirely new multi-cancer recurring revenue streams, set to begin in 2026 and scale annually thereafter, with the potential to rapidly accelerate top-line growth above consensus as longitudinal testing becomes the norm in patient management.
  
• International growth is poised for structurally higher upside: with the SAS restructuring complete and fresh investment in US-based IVD teams, Veracyte can accelerate market entry and reimbursement progress across Europe and Asia, providing high-margin, geographically diversified revenue that has barely begun to contribute to the company's financials.
  
• Veracyte's GRID and digital pathology/data platforms are quickly emerging as a central hub for next-generation precision medicine and research collaborations, and could support breakthrough partnerships, biopharma services, and AI-driven diagnostics-creating new, high-value revenue segments and potential data monetization opportunities with significant positive impact on long-term earnings growth.

Veracyte Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Veracyte compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Veracyte's revenue will grow by 11.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.5% today to 23.4% in 3 years time.
• The bullish analysts expect earnings to reach $154.2 million (and earnings per share of $1.76) by about September 2028, up from $26.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.1x on those 2028 earnings, down from 94.2x today. This future PE is greater than the current PE for the US Biotechs industry at 15.5x.
• Analysts expect the number of shares outstanding to grow by 1.51% 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.

Veracyte Future Earnings Per Share Growth

Risks

• Heightened healthcare cost controls and increased price transparency, as well as reimbursement pressures such as laboratory benefit manager impacts on Afirma, are already resulting in lower average selling prices and may further compress test ASPs and overall revenue growth in future years.
  
• Veracyte's revenue and earnings are heavily concentrated in a few flagship tests, particularly Decipher and Afirma, making the company highly vulnerable to changes in clinical guidelines, evolving standards of care, or new competitive products that could sharply reduce market share and profitability.
  
• The diagnostics industry faces increasing risk of commoditization, which can lead to downward pressure on pricing and margins; as sequencing technology becomes cheaper and widely available, Veracyte may struggle to maintain premium pricing and expand gross margins in the long term.
  
• Substantial ongoing investment in R&D and expansion into new clinical indications raises the likelihood of continued negative net margins or delayed profitability, especially if reimbursement for new products, such as MRD or Prosigna, is slow to materialize or clinical adoption is less robust than anticipated.
  
• Societal and regulatory resistance to broad genetic data sharing, as indicated by growing privacy concerns, could inhibit physician and patient adoption of Veracyte's advanced genomic platforms, thus limiting future test volumes and constraining revenue growth relative to management's projections.

Valuation

• The assumed bullish price target for Veracyte is $45.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Veracyte's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $658.7 million, earnings will come to $154.2 million, and it would be trading on a PE ratio of 29.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $31.52, the bullish analyst price target of $45.0 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.