Needham downgraded NeoGenomics, Inc. ( NASDAQ: NEO ), an operator of cancer-focused testing labs, to Hold from Buy on Monday, arguing that the company's turnaround plan is only an initial step and is likely to take longer to yield meaningful results.
The 18-month plan called Project Catalyst, unveiled at the company's Q2 2022 earnings call, is expected to generate at least $15M in operational improvements.
Calling the move "a step in the right direction," but only an initial step, Needham's Mike Matson and the team note that the anticipated savings are small compared to the company's ~30% decline in EBITDA margin from 2018 – 22.
"We expect progress over the next 18 months but believe it will take significantly longer for NEO to even approach" the historical peaks for gross and EBITA margins, they added.
While 2023 could be a transition year for the company, Needham cites overly high Street forecasts for 2023 and 2024.
Despite the potential of NEO's RaDaR minimal residual disease (MRD) test to eventually lift the company's revenue growth, Matson and the team project limited sales for the cancer assay in 2023.
RaDaR, a laboratory-developed test, is designed to detect 48 tumor-specific variants using cell-free DNA (cfDNA) in a cancer patient's blood.
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NeoGenomics cut to Hold at Needham citing longer turnaround