Consistent uptrend in Oncotype sales, pipeline development,
strategic investments and impressive second quarter performance
), a global cancer company, to achieve a Zacks #1 Rank (Strong Buy)
on October 09, 2012. Moreover, this company has delivered positive
earnings surprises in four out of the last five quarters with an
average beat in triple digits.
With a strong one-year return of 50.9%, a robust portfolio and a
history of beating quarterly earnings estimates, this stock offers
an attractive investment opportunity.
Strong Oncotype growth, focus on international expansion,
several recent strategic initiatives, and attractive growth
opportunities in the field of cancer diagnosis enabling physicians
to make individualized treatment decisions are the primary
rank drivers for this stock.
In August 2012, Genomic Health reported a strong second quarter
2012 result with earnings per share (EPS) of 6 cents, way above the
Zacks Consensus Estimate of a loss of 2 cents. Although total
revenues of $57.6 million nominally missed the Zacks Consensus
Estimate of $58 million, it displayed a robust 13% year over year
growth on the back of strong sales in Oncotype DX breast cancer
test. Based on a solid quarter, the company increased its full year
consolidated net income outlook to $4-$7 million, an improvement
from the previous guidance of break-even or net loss of $3
Genomic Health's flagship product, the 21-gene Oncotype DX
breast cancer test has been recording strong growth over the past
several quarters. The company also diversified its offering with
the launch of the Oncotype DX DCIS Score at the end of 2011 and
expects to deliver 75,000−77,000 tests in 2012.
Banking on its several strategies directed toward an increasing
acceptance of the test, Genomic is well placed to capitalize on the
huge market potential. It has been observed that the Oncotype DX
breast cancer test changed treatment decision in 37% of early-stage
breast cancer patients resulting in hundreds of millions of dollars
in healthcare savings. Besides, progress is also being made on the
Genomic Health is progressing well with its pipeline expansion.
Last month, the company announced positive results from a large
clinical validation study of its biopsy-based prostate cancer test.
Accordingly commercial launch of the Oncotype DX prostate
cancer test is expected by the first half of 2013. In the same
month, the company also announced positive data supporting the
extended use of Oncotype DX tests in optimizing treatment decisions
for breast and colon cancer patients at various stages of
Genomic Health emphasizes on expansion of its international
footprint where it has huge growth potentials. Securing
reimbursement outside the U.S. continues to be the major driver of
growth in the international business.
In another development, the company has formed a wholly owned
genetics subsidiary, InVitae Corporation, to provide clinically
relevant genetic information to physicians and patients from 2013.
Viewing the huge market opportunity in DNA sequencing, this
business could be a long-term contributor to the growth
Earnings Estimate Revision
The Zacks Consensus Estimate for 2012 has grown 1700% over the
past 90 days to 18 cents per share. Meanwhile, the Zacks Consensus
Estimate for 2013 has risen 71.4% to 36 cents per share over the
same time frame, representing year-over-year growth of about
Genomic Health's valuation looks stretched compared to its peers
by most metrics. The company is trading at a price-to-book ratio of
7.61x, which is 5.6 times the peer group average of 1.35x. The
premium is warranted given a higher long-term earnings growth rate
(32.4%) compared with the industry average (12.5%).
Shares look fairly valued with a return on investment (ROI) of
7.6%, a marginal discount compared to the peer group average of
7.8%. This implies that the company reinvests its earnings almost
as efficiently as its peer group. Also with respect to return on
assets (ROA), assets of Genomic Health look profitable at 6.3% -
another nominal discount compared to the peer group average of
About the Company
Headquartered in Redwood City, California, Genomic Health is a
global cancer company with a focus on advanced molecular
diagnostics. The company is focused on the development and
commercialization of genomic-based clinical tests for cancer
diagnosis that enables physicians to make individualized treatment
decisions. With a market capitalization of roughly $1.04 billion,
Genomic Health provides its Oncotype DX breast cancer tests in 86
countries and the colon cancer test to patients in 75
Other Zacks #1 Rank (Strong Buy) medical devices stocks include
Align Technology Inc.
ALIGN TECH INC (ALGN): Free Stock Analysis
AMEDISYS INC (AMED): Free Stock Analysis Report
GENOMIC HEALTH (GHDX): Free Stock Analysis
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