Company Reports

Guardant Health’s results and guidance were in line with our expectations. Full-year revenue was $564 million, or 26% year-on-year growth, and the midpoint of its guidance range for 2024 is $662.5 million, or approximately 17.5% growth. We are maintaining our $47 fair value estimate, and we think shares are undervalued. However, we also reiterate the company’s Very High Morningstar Uncertainty Rating, as key pipeline products, including Shield and Reveal, are not yet derisked, and we think the company is still about 4-5 years away from profitability.

Guardant Health is a leader in liquid biopsy. It has market leading platforms in genomics profiling, molecular residual disease, or MRD, testing, and single cancer screening for colorectal cancer, or CRC. It launched Reveal, its MRD test, for CRC in 2021 and a lab-developed test, or LDT, version of Shield, its CRC screening test, in 2022. Although these are promising markets with multi-billion-dollar revenue potential, it is still the early days, and considerable uncertainty surrounds the details of payer coverage and guideline inclusion. We do not expect the company to generate positive cash flows until 2028, or two years after Shield’s potential inclusion in the U.S. Preventive Services Task Force, or USPSTF, guidelines in 2026.

Guardant Health posted good third-quarter results and revised full-year guidance up by $7 million to $554.5 million using the midpoints of the ranges. Revenue in the quarter was $143 million, or 22% year-on-year growth, and precision oncology was $133 million, or 31% year-over-year growth. We maintain our $47 fair value estimate and think shares are undervalued. However, we reiterate that key products are not yet derisked, and the company is probably at least four or five years away from being profitable.

Guardant Health is a leader in liquid biopsy. It has market leading platforms in genomics profiling, molecular residual disease, or MRD, testing, and single cancer screening for colorectal cancer, or CRC. It launched Reveal, its MRD test, for CRC in 2021 and Shield, its CRC screening test, in 2022. Although these are promising markets with multi-billion-dollar revenue potential, it is still the early days, and considerable uncertainty surrounds the details of payer coverage and guideline inclusion. We do not expect the company to generate positive cash flows until 2027 at the earliest, which is one year after the company’s estimate of Shield’s inclusion in the U.S. Preventative Services Task Force, or USPSTF, guidelines in 2026.

We are transferring coverage of Guardant Health, keeping our moat rating at none, and lowering our fair value estimate to $47 from $63 previously. This is driven by a slower projection of Shield’s revenue trajectory and partially offset by a more optimistic view of its Reveal franchise.

Guardant Health is a leader in liquid biopsy. It has market leading platforms in genomics profiling, molecular residual disease, or MRD, testing, and single cancer screening for colorectal cancer, or CRC. It launched Reveal, its MRD test, for CRC in 2021 and Shield, its CRC screening test, in 2022. Although these are promising markets with multi-billion-dollar revenue potential, it is still the early days, and considerable uncertainty surrounds the details of payer coverage and guideline inclusion. We do not expect the company to generate positive cash flows until 2027 at the earliest, which is one year after the company’s estimate of Shield’s inclusion in the U.S. Preventative Services Task Force, or USPSTF, guidelines in 2026.

On Sept. 1, Guardant Health announced the closure of one of its minimal residual disease, or MRD, studies, which featured the Guardant Reveal test. Shares fell about 10% that day, implying investor concern about the implications of the study closure on the firm’s prospects. However, after hearing management’s explanation for the study closure and reviewing the assumptions in our model, we expect to trim our forecasts only minimally, with no material impact on our $63 fair value estimate. With the significant stock price decline, shares still look undervalued to us.

Guardant Health is taking a slightly different approach than liquid biopsy peers Illumina and Exact Sciences by initially targeting the early-stage detection and screening niche through individualized cancer tests. We expect Guardant will be a first mover in colorectal cancer liquid biopsy with the Lunar-2 test currently awaiting U.S. Food and Drug Administration approval, and we estimate the U.S. market opportunity at $18 billion for colorectal cancer screening alone. We believe Guardant is ahead of peers in single-cancer screening, which could lead to FDA approval by early 2024. If this occurs, we would expect the company to rapidly pursue other indications, such as lung, breast, and ovarian cancer, and a possible combination multi-cancer test in the long run.

No-moat Guardant Health posted strong second-quarter results that were about in line with our expectations. Solid volume growth drove revenue up 26% year over year and pushed management to lift full-year guidance. While we have slightly raised our full-year 2023 revenue growth forecast on a strong first-half performance, we maintain our longer-term growth assumptions, and therefore there is no material change to our $63 fair value estimate. Shares remain significantly undervalued at current prices.

Guardant Health delivered strong first-quarter results, and management increased its sales outlook for the full year. Our 2023 assumptions remain within the company's new guidance range, and we do not anticipate changing our $63 fair value estimate at first glance. Also, although our moat rating remains no-moat, we are still optimistic about Guardant's liquid biopsy pipeline, particularly for early detection of colorectal cancer, which is reflected in our positive moat trend rating.

Guardant Health delivered decent fourth-quarter and full-year results. Although top-line growth was strong, margins remained compressed relative to the prior year, and the firm's 2023 revenue outlook came in slightly below our projections. Nevertheless, at first glance we are maintaining our $63 fair value estimate due to our assumptions around the company's long-term prospects in early cancer detection, and we continue to believe the shares are significantly undervalued. Our moat rating remains none on this early-stage company, but we are still optimistic about Guardant's liquid biopsy pipeline for early cancer detection. Up first, Shield still has the potential to be the first Food and Drug Administration-approved, Medicare-reimbursed blood test for colorectal cancer screening, which is reflected in our positive moat trend rating.

Guardant Health released preliminary unaudited financial results for 2022. At first glance, even after adjusting near-term assumptions to reflect the outperformance in the fourth quarter, our long-term assumptions would not change much. So we are maintaining our $63 fair value estimate. Shares still appear to be undervalued even after today's high-single-digit rally.

Guardant Health shares dived in after-hours trading following the release of underwhelming colorectal-cancer liquid-biopsy trial results. We are reducing our fair value estimate to $63 per share from $82 on this announcement, but we continue to view shares as undervalued. The trial data, which will be submitted for FDA approval in the first quarter of 2023, was weaker than earlier data but still decent, in our opinion. Additionally, if approved, the data virtually ensures reimbursement from the Centers for Medicare and Medicaid Services, or CMS, which has given prior guidance on the matter. However, these weaker-than-anticipated results highlight the very high uncertainty that surrounds cash flows for Guardant, which we believe has yet to dig an economic moat.

Guardant Health is taking a slightly different approach than liquid biopsy peers Illumina and Exact Sciences by initially targeting the early-stage detection and screening niche through individualized cancer tests. We expect Guardant will be a first mover in colorectal cancer liquid biopsy with the Lunar-2 test likely to be one of the first to obtain Food and Drug Administration approval, and we estimate the U.S. market opportunity at $18 billion for colorectal cancer screening alone, the initial focus of the test. We believe Guardant is ahead of peers in single-cancer screening, with the firm currently enrolling 10,000 people for its Eclipse clinical trial, which could lead to FDA approval within the next year or so if the full trial supports initial promising data. If this occurs, we would expect the company to rapidly pursue other indications, such as lung, breast, and ovarian cancer, and a possible combination multi-cancer test in the long run.

Guardant Health’s third-quarter sales roughly met expectations, but management trimmed its full-year guidance on several likely temporary challenges. We are not changing our $82 fair value estimate and continue to believe that shares in this liquid biopsy player remain undervalued. Our moat and trend ratings remain none and positive, respectively.

Guardant Health is taking a slightly different approach than liquid biopsy peers Illumina and Exact Sciences by initially targeting the early-stage detection and screening niche through individualized cancer tests. We expect Guardant will be a first mover in colorectal cancer liquid biopsy with the Lunar-2 test likely to be one of the first to obtain Food and Drug Administration approval, and we estimate the U.S. market opportunity at $18 billion for colorectal cancer screening alone, the initial focus of the test. We believe Guardant is ahead of peers in single-cancer screening, with the firm currently enrolling 10,000 people for its Eclipse clinical trial, which could lead to FDA approval within the next year or so if the full trial supports initial promising data. If this occurs, we would expect the company to rapidly pursue other indications, such as lung, breast, and ovarian cancer, and a possible combination multi-cancer test in the long run.

Guardant’s second-quarter sales met consensus forecasts aggregated by FactSet, though results fell short of our higher expectations, and we are reducing our fair value estimate to $82. Shares remain moderately undervalued in our view. We are also maintaining our no-moat and positive moat trend ratings.

Guardant Health is taking a slightly different approach than liquid biopsy peers Illumina and Exact Sciences by initially targeting the early-stage detection and screening niche through individualized cancer tests. We expect Guardant will be a first mover in colorectal cancer liquid biopsy with the Lunar-2 test likely to be one of the first to obtain Food and Drug Administration approval, and we estimate the U.S. market opportunity at $18 billion for colorectal cancer screening alone, the initial focus of the test. We believe Guardant is ahead of peers in single-cancer screening, with the firm currently enrolling 10,000 people for its Eclipse clinical trial, which could lead to FDA approval by 2024 if the full trial supports initial promising data. If this occurs, we would expect the company to rapidly pursue other indications, such as lung, breast, and ovarian cancer, and a possible combination multi-cancer test.

Coming amidst market volatility and a share price seemingly in free fall, Guardant Health reported solid first-quarter results with top-line growth meeting expectations, and a net loss coming in a tad lower than we had anticipated. Though our no-moat rating and $91 fair value estimate are unchanged, we continue to believe Guardant’s strengthening intangible assets supports the firm’s positive moat trend rating. We see shares as undervalued, with the stock trading at a price to fair value estimate ratio of 0.56.

Healthcare innovation represents a key area of exponential growth, and we think the scientific community's understanding of medical interventions has increased significantly over time and is likely to continue fast-paced development during the decades ahead. Within healthcare innovation, we view two key areas of explosive growth potential: innovative therapies and innovative devices and diagnostics, the latter of which is the focus of our new research. While the medical device and diagnostic industry's innovation engine appears mostly evolutionary to us, revolutionary innovations can represent the spark that both pioneers new markets and widens economic moats through the intangible asset source that is often present in medtech. Massive growth in scientific advancements and medical articles, along with major increases in medical patents, supports exponential growth opportunities in certain pockets of the medtech industry, in our opinion.