Myriad Genetics Earnings: Robust Testing Volumes Propel Revenue Growth, Provide Near-Term Momentum

We make no change to our $18.50 fair value estimate for no-moat Myriad Genetics MYGN, as third-quarter results landed largely as expected. Overall revenue growth of 14% year over year was driven by continued momentum in testing volume growth across the product portfolio, including strong volume growth year over year in hereditary cancer at 18%, pharmacogenomics at 19%, and prenatal (excluding contributions from Sneak Peak) at 20%. Solid revenue growth demonstrates healthy demand for the firm’s core offering and led management to raise its full-year 2023 topline growth estimate to 10%-11%, up about 100 basis points at the midpoint. We made similar adjustments to our full-year revenue expectations, but with no material impact on our valuation. At current prices, Myriad’s shares look about fairly valued.

While challenging payer and pricing dynamics haven’t fully gone away, the strain on profitability is easing slowly. Third-quarter margins reflect this improvement, where year over year and sequential margin expansion was driven by better pricing and increasing payor coverage. However, as we continue to see volatility with these factors in the near term, we believe the firm will need to continue its prudent cost cutting in order to remain on track to achieve its profitability goals over the longer term. Enhanced visibility into contract payouts in the near term should also help contribute to incremental margin expansion through revenue growth expectations.

Our longer-term forecasts for the firm remain largely intact. We made only minimal updates to our assumptions based on management’s full-year 2024 guidance announcement, given that this outlook was in line with the firm’s unchanged, longer-term goals of 10% annual revenue growth and gross margins over 70%. This compares with our 2027 forecasts of 9.2% revenue growth compounded annually and 72.5% gross margin, supported by continued market share gains, increased market penetration, and overall industry trends.