4 Reasons Why Morgan Stanley Is Bullish On Myriad Genetics

Shares of molecular diagnostic company Myriad Genetics, Inc. MYGN have 45-percent upside potential, according to Morgan Stanley.

The Analyst

Analyst Steve Beuchaw upgraded shares of Myriad Genetics from Equal-weight to Overweight and increased the price target from $35 to $55.

The Thesis

Myriad Genetics' stabilizing core business and high-return capital deployment are likely to result in an accelerating earnings profile, Beuchaw said in the Wednesday upgrade note. (See his track record here.) 

The upgrade is based on the following four factors, the analyst said: 

• The core hereditary cancer testing business is showing durability, with volume growth resuming and price declines slowing.
• Uptake and reimbursement for the Genesight psychiatric test.
• Myriad's entry into fast-growing prenatal testing via Counsyl.
• The $40 million in operating expenditure cuts the company plans over the next two years.  

Key acquisitions are helping expand the company's total addressable market into psychiatry, with Assurex, and prenatal testing through the aforementioned purchase of Counsyl. 

Conservative estimates make the stock inexpensive, and the company has the highest free cash flow yield in Morgan Stanley's coverage universe, Beuchaw said. 

"Our EBIT estimate moves 30 percent higher in fiscal 2020 and above consensus by a similar degree for the improving stabilization we see in core [hereditary cancer testing] and the inclusion of Counsyl."

Myriad's fiscal 2019 annual guidance, which is expected to be issued along with an earnings report in August, is a key catalyst, the analyst said. The guidance 

The firm sees the company's FY19 annual guidance, including Counsyl, expected to be issued during the earnings in August as a key catalyst. The figures could drive consensus estimates for 2019 higher by 10 percent, he said.  

The Price Action

Myriad Genetics shares have added about 11 percent year-to-date.

The stock was rallying 14.23 percent to $43.44 at the time of publication Wednesday afternoon.

Related Links:

The Week Ahead In Biotech: Conferences, PDUFA Dates And Clinical Trials

Benzinga's Daily Biotech Pulse: Pfizer To Defer Price Hikes, Idera-BioCryst Merger Falls Through, ArQule To Offer Shares