DHR - Exact upgraded Guardant downgraded as Citi revisits diagnostics coverage

2023-03-09 08:34:12 ET

Following the earnings season, Citi has taken a fresh look at its life science tools & diagnostics coverage, upgrading the colorectal cancer test maker Exact Sciences ( NASDAQ: EXAS ) and downgrading its rival Guardant Health ( NASDAQ: GH ).

While acknowledging that both companies have implemented cost-cutting initiatives recently, the analyst Patrick Donnelly paints a favorable outlook for Exact ( EXAS ) which he upgrades to Buy from Neutral.

“EXAS is better positioned today in our view given its adj. EBITDA profitability in 4Q22 and guidance calling for adj. EBITDA profitability in FY23 with FCF positive by YE24,” the analyst wrote, raising his price target to $90 from $70 per share.

Downgrading Guardant ( GH ) to Neutral from Buy and slashing its price target to $33 from $60 per share, Donnelly argues that the company lacks near-term catalysts in cancer screening.

With a limited potential to drive upside to financials, the blood-based cancer test maker does not intend to break even companywide until 1 – 2 years from FY26, when a potential guideline issuance from the U.S. Preventive Services Task Force is expected, the analyst added.

In December, Exact ( EXAS ) outperformed after Guardant ( GH ) announced topline data for a blood-based screening test for colorectal cancer, disappointing Wall Street analysts.

Citi also issued positive catalyst watches on its Buy rated stocks Bio-Techne ( TECH ), PerkinElmer ( PKI ), and Danaher ( DHR ), where its price targets stand at $170, $100, and $325, respectively.

The positive catalyst watch on PerkinElmer ( PKI ) is based on its attractive valuation and de-risked industry headwinds in China, as suggested by a return to pre-COVID diagnostic volumes.

As for Bio-Techne ( TECH ), Donnelly notes a reasonable bar for results to outperform given the high growth prospects in China, Europe, and the company’s Exosome business.

“On DHR, we believe newsflow on potential M&A is well understood by investors, and that current valuation assumes no near term improvement in inventory destocking,” the analyst added.

In February, Catalent ( CTLT ) shares gained amid reports that Danaher ( DHR ) had shown interest in acquiring the contract manufacturer at “a significant premium.”

Read: This month, Seeking Alpha contributor Leo Nelissen reiterated the Buy rating on Danaher ( DHR ), citing its dividend payouts and M&A-led business model.

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