Morgan Stanley Neutral On Natera, Starts At Equal-Weight

In a report published Monday, Morgan Stanley analyst Steve Beuchaw initiated coverage of Natera Inc NTRA with an Equal-weight rating and price target of $20. The analyst expects the company to grow at a CAGR of 25 percent over the next three years into a TAM worth $15 billion, despite pricing pressure on its core business.

Beuchaw believes that "the technology and commercial organization are top-tier but valuation suggests expectations are high," while expecting increased visibility over the next 2-4 years into the company's path to penetrating the combined oncology and prenatal TAM.

The analyst expects Panorama, the company's lead non-invasive prenatal screening product, to see expanding market opportunity in the U.S. over the next 1-3 years, with increased insurance coverage. This is expected to drive over 30 percent growth for Panorama.

In addition, "Natera's cloud-based lab model positions the company to expand into an incremental $2bn TAM in Europe," according to the Morgan Stanley report. Also visibility into Natera's liquid biopsy platform is likely to increase over the next 2-3 years. This non-invasive cancer test has a market opportunity of about $10 billion.

However, the analyst expressed concern regarding the competition in the markets the company operates in.

"Timelines on insurer coverage of NIPS (non-invasive prenatal screening) testing in the low/average risk pregnancy populations are unclear. Liquid biopsy is a nascent field, and clinical trials to prove analytical and clinical value would be completed over the next 2-4 years," Beuchaw added.