On Thursday, Goldman Sachs adjusted its stance on Veracyte, Inc (NASDAQ:VCYT), shifting the rating from Buy to Neutral and slightly decreasing the price target to $37 from the previous $38. The firm noted that the stock has outperformed within the Diagnostics sector, highlighting its impressive year-to-date gain of over 60% compared to the S&P 500's increase of approximately 28.5%.
The downgrade comes after observing the average return in the Diagnostic coverage area, which has seen a decline of 15% since November 18, 2021. The firm pointed out the contraction in the next twelve months (NTM) enterprise value to sales (EV/Sales) multiple, which has fallen from 8.7 times to 4.4 times. This shift reflects a cooling of the post-Covid enthusiasm in the Diagnostics space, positioning Veracyte as a relative outperformer.
Veracyte's strong performance is attributed to its consistent top-line growth, which has led to a steady trend of surpassing expectations and raising forecasts over the past two years. This success is particularly notable given that Veracyte is one of the few profitable companies in the Diagnostics industry.
Despite the company's solid track record and potential for continued growth, Goldman Sachs anticipates a possible deceleration in Afrima growth in 2025 due to high market penetration levels. Nevertheless, Decipher Prostate is expected to remain a significant contributor to the company's revenue in the coming year.
The analyst also mentioned several of Veracyte's pipeline projects, including minimal residual disease (MRD), expansion in European in vitro diagnostics (IVU), and the Percepta nasal swab. However, these projects are anticipated to be a few years away from making a substantial impact on the company's revenue streams.
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