On Friday, Bernstein, a prominent financial firm, upgraded Natera (NASDAQ:NTRA) stock, a leader in personalized genetic testing and diagnostics, from Market Perform to Outperform. The firm significantly raised the price target for Natera's shares to $120 from the previous target of $86, indicating a positive outlook on the company's future performance.
The upgrade comes as the analyst at Bernstein highlighted the current valuation of Natera's shares, which trades at 8 times the projected sales for 2024, as appearing rich when compared to other small to mid-cap (SMID-cap) tools and diagnostics companies. However, the analyst argues that this comparison does not accurately reflect Natera's true value due to several unique factors.
Firstly, the analyst believes that the conventional valuation methods do not adequately capture the distinctiveness of Natera's product offerings. Secondly, they point out that these methods fail to account for Natera's unique gross margin expansion story. Lastly, finding comparable products with a gross profit trajectory similar to Natera's flagship product, Signatera, is challenging due to its distinctive nature.
Instead of traditional valuation metrics, Bernstein utilized a sum-of-the-parts (SOTP) valuation approach based on enterprise value to gross profit at relative maturity, which is then discounted back. From this analysis, the firm estimates that a conservative base case for Natera is fairly valued at $89, compared to the trading price of $92.36.
The analyst also considered the balance of potential upside factors, such as the inclusion of guidelines for 22q deletion syndrome and carrier screening, along with a more favorable evolution of Signatera's average selling price (ASP). Conversely, they weighed these against potential downside risks, such as a weak outcome from the ALTAIR study. After a probability-weighted evaluation, these factors were collectively valued at an additional $27, further supporting the raised price target.
InvestingPro Insights
The recent upgrade of Natera's stock by Bernstein has sparked interest in the company's financial health and growth prospects. According to InvestingPro data, Natera boasts a market capitalization of $11.15 billion, underlining its significant presence in the genetic testing and diagnostics market. The company has experienced a remarkable revenue growth of 31.99% over the last twelve months as of Q4 2023, with a quarterly increase of 43.2% in Q1 2023, suggesting a strong upward trajectory in sales.
Despite not being profitable over the last twelve months, with a negative P/E ratio of -24.74, Natera's stock has seen a substantial return of 74.26% over the past year, indicating robust investor confidence. This is further evidenced by the stock trading near its 52-week high, at 95.41% of the peak value. InvestingPro Tips highlight that analysts have revised their earnings upwards for the upcoming period, which may signal expectations of continued growth. However, they also caution that analysts do not anticipate the company will be profitable this year.
For readers interested in a deeper analysis, InvestingPro offers additional insights on Natera, including more InvestingPro Tips that can guide investment decisions. To access these insights and take advantage of a comprehensive investment tool, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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