Myriad's Downside Case Might Not Matter

In a report published Wednesday, Barclays analysts maintained an Overweight rating on Myriad Genetics Inc MYGN, with a price target of $46. While stating that they were not "supporters of the downside case for Myriad," the analysts said that the aim of the report was to "better quantify" what they felt was the "true downside" for investors and highlight the "levers available to protect an investment in the company." In the report Barclays noted, "The biggest concern relates to pricing, given Myriad's premium position and the direct flow-through to earnings." Myriad has had to forego 10% market share in hereditary cancer testing, and could witness further contraction. The analysts consider the "downside case scenario" for Myriad as a 10% reduction in price and another 1500bps of market share contraction. This translates to an EPS of $1.20 in FY2016. "We would view that reset as a clearing event and would expect the subsequent valuation for Myriad to trade in line with diagnostic peers at 18x cash EPS," the report said. "After giving the company credit for $3/share of cash on the balance sheet, we are raising our downside case to $25," the analysts commented, while adding that, although $25 was the "mathematical downside," Myriad enjoyed several levers to return to an EPS of $1.90 and these levers "provide a floor closer to $30." "We believe a risk/reward scenario of +70% vs -30% is compelling enough, and once quantified, we can turn our focus toward "What is the Upside Case"." The EPS estimates for 2015 and 2016 have been raised from $1.50 to $1.53 and from $2.00 to $2.15, respectively. The contributing factors included the removal of dilution from Prolaris and Vectra DA, improving salesforce efficiency and share repurchase.