Even After Dipping Under $21, Morgan Stanley Says Myriad Genetics Is Not Cheap

Shares of Myriad Genetics, Inc. MYGN were trading lower by nearly 30 percent Wednesday at $21.49 after the company's fiscal fourth quarter earnings print fell short of expectations and its forward looking guidance also fell short of what the Street was expecting.

 Steve Beuchaw of Morgan Stanley stated that the competitive pressure that Myriad faces is "now undeniable." Granted, the top-line miss in the quarter was "relatively minor" but the a 150 basis points decrease in gross margins on a year-over-year basis were "more notable."

Related Link: Barclays Downgrades Myriad, Says Hereditary Cancer Testing Losses Came Faster Than Expected

He cited management's fiscal 2017 guidance, which was organically 11 percent below consensus estimate on the top-line and 29 percent below at the earnings per share line. In fact, the guidance implies a 5 to 10 percent decline in revenue year-over-year and an approximate 20 percent dip in earnings per share.

Beuchaw added that market weakness is a "likely factor" in the company's outlook. Specifically, contracts among the 65 percent of Myriad's long-term contract base are coming up for renewal and the analyst's checks suggest it's being renewed at prices at least 3 percent below prior levels. In addition, the rate of price declines has "accelerated."

Finally, the analyst argued that even with the stock trading below $25 "is still not cheap" as the "trend in the business turned more sharply than we anticipated."

Bottom line, Beuchaw anticipates that selling pressure among investors could push the stock below $20 because the "vulnerability of the core hereditary business is now undeniable."