Credit Suisse has started coverage of Fulgent Genetics Inc (NASDAQ: FLGT) with an Outperform rating and price target of $13, saying proprietary technology and cost advantages should double the company’s test volume in 2016 and 2017, triggering revenue growth of 90 percent and 98 percent, respectively.
The brokerage said the $4 billion genetic testing market should grow about 17 percent a year over the next six years on favorable demographics, improving technology, and global evolution of health care protocols.
The strong growth for genetic testing market bodes well for Fulgent, which, according to the brokerage, performs test at low cost and supports the broadest test menu (18,000+ genes) in the industry.
“It should gain share in a nascent genetic testing market while maintaining an attractive profit profile ahead of other genetic testing companies,” analyst Erin Wilson wrote in a note.
In addition, Wilson noted that the company’s customer base, test menu, new payor contracts and broader geographic presence should enable Fulgent to weather the ongoing tough reimbursement environment.
“Declining COGS/test, leveraging its technology platform, and economies of scale should drive material profit margin expansion,” Wilson continued.
Wilson expects 2016 EPS of $0.27 on revenue of $18.2 million and 2017 EPS of $0.47 on revenue of $36 million.
On the valuation front, the analyst said FLGT's shares currently trade at 3.0x and 6.8x 2017E EV/Sales and EV/EBITDA, well below its peer group average of 3.8x and 12.7x, respectively. The $13 target price implies EV/Sales and EV/EBITDA multiples of 5.3x and 11.8x, respectively.
Shares of Fulgent closed Friday’s trading at $8.86.
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