TWST - Reconsidering Twist Biosciences

2023-05-19 13:28:28 ET

Summary

• The stock of Twist Bioscience Corporation has declined more than 60% since our first peek at it in the fall of last year.
• However, the stock saw its first insider buy in a year last week, and the company is restructuring its organization to lower costs.
• Twist Biosciences also continues to see solid revenue growth.  Has the stock dipped into the "buy zone" yet?
• An updated investment analysis follows in the paragraphs below.

There are not nearly as many facts as there are opinions about the facts. ”? Craig D. Lounsbrough.

It has been more than a half a year since our first look at Twist Bioscience Corporation ( TWST ). We concluded that article back in November with the following conclusion:

However, until management at Twist Biosciences shows significant strides lowering its quarterly cash burn rate and is much closer to getting to break-even status; I will be avoiding the shares. We should get a new set of data points to analyze, it should be noted, as third-quarter results will be out shortly ."

That turned out to be the right call, as TWST stock has dropped just over 60% since our first take on the firm. The company has posted a couple of quarterly reports since then, and last week the stock saw an insider purchase. Therefore, we are going to circle back on Twist Bioscience today. An updated analyst follows below.

Company Overview:

This somewhat unique life sciences concern is based out of South San Francisco. Among the products Twist offers are synthetic genes, tools for sample preparation, antibody libraries for drug discovery and development, and DNA as a digital data storage medium. End users for these products include the industrial, agriculture, and medical sectors. The company is broken down into three business lines: Next-Generation Sequencing or NGS, Biopharma, and Synthetic Biology. The stock currently trades at around $13.00 a share and sports an approximate market capitalization of $750 million. The company operates on a fiscal year that begins on October 1st.

Second Quarter Results:

On May 5th, the company posted its second-quarter numbers. On a GAAP basis, the company lost $1.04 a share, which was about a dime better than expectations. Twist lost $1.13 a share in the second quarter of 2022 in ways of comparison. Revenues rose 25% on a year-to-year basis to $60.2 million, solidly above the consensus.

The company shipped various products to approximately 2,100 customers during the quarter, up from 2000 in the year-ago period. Twist shipped approximately 152,000 genes during the quarter, compared to 124,000 in 2Q2022.

NGS revenues were up 26% Y/Y to $29.2 million. Synthetic Biology saw sales grow 31% from 2Q2022 to $24.1 million, which included 11% sequential growth from this year's first quarter. Finally, sales from its Biopharma division fell to $7 million from $8.2 million in the year-ago period.

These were solid results for the quarter. Unfortunately, for shareholders, management ratcheted down full-year guidance for 2023. It now sees the following:

Approximately $235 million to $238 million in full-year sales, compared to previous guidance of $261 million to $269 million. Of which:

• Synthetic Biology revenue is expected to be $96 million to $98 million, compared to previous guidance of $104 million to $106 million
• NGS revenue is expected to be $113 million to $114 million, compared to previous guidance of $120 million to $123 million.
• Biopharma revenue is expected to be $26 million, compared to previous guidance of $37 million to $40 million.

In addition, gross margin is now expected in the 35% to 36% range, down from previous guidance of 39% to 40%. Leadership did lower its forecast for R&D and SG&A expense in FY2023 to a range of $313 million to $319 million, versus its previous guidance of $330 million. The company cut approximately 270 positions earlier this year. Leadership also lowered their CapEx forecast this year to $40 million from $50 million prior.

Management is in the process of rightsizing 25% of the company, which will result in quarterly cash savings of $9 million to $11 million starting in the first quarter of FY2024.

Analyst Commentary & Balance Sheet:

Analyst firm sentiment on Twist Biosciences remains mixed. Since first quarter results were posted, three analyst firms including Barclays have reissued Buy ratings on the stocks. Albeit, two of these contained downward price target revisions. Price targets proffered range from $18 to $30 a share. Both JPMorgan ($18 price target) and SVB Securities ($11 price target) maintained Hold ratings on TWST.

Approximately 22% of the outstanding float in the shares is currently held short. The company's general counsel bought 10,000 shares of the stock on May 10th. This was the first insider buy in the shares since last May, when an insider purchased just over $250,000 worth of shares at just under $30. Other insiders have sold just under $100,000 worth of equity collectively so far in 2023.

During the first quarter conference call , management stated it believes the company will end FY2023 with $320 million of cash and marketable securities on its balance sheet . This was up $20 million from previous guidance. Twist ended the first quarter with just over $385 million worth of cash and marketable securities. The company has minimal long-term debt.

Verdict:

The current analyst firm consensus has Twist Bioscience Corporation losing four bucks a share in FY2023, even as revenues rise 16% to some $237 million. They see sales growth accelerating to mid-20s in FY2024, but losses remaining north of three bucks a share. Revenue growth next year should benefit from the launch of the company's "fast genes" later in 2023.

Leadership is taking some prudent steps to lower its quarterly burn rate and sales growth is still solid, even after the recent guidance cut. Twist should burn just over $30 million on average in the final two quarters of this fiscal year. Its balance sheet is in good stead and revenue growth should accelerate again in FY2024.

However, it is hard to find a compelling reason to own Twist Bioscience Corporation stock given the current market environment, which hasn't been kind to profitless growth stocks as the Federal Reserve has ratcheted up rates by 500bps since March of last year. With profitability far out on the horizon, I continue to pass on any investment recommendation on Twist Bioscience Corporation despite the stocks over 60% pull back since our initial article on the company.

Those who twist the words of others, to make themselves feel better, are unwilling to do the work to untwist their own. ”? Christine E. Szymamski

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