Analysts see buying opportunity in Guardant Health stock after 30%+ drop on cancer test results

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By Senad Karaahmetovic

Guardant Health (NASDAQ:GH) stock is down about 34% in pre-market Friday after the company reported results from a study of its test for detecting colorectal cancer (CRC).

The test showed 83% sensitivity in detecting individuals with CRC, GH said in a press release. The company now plans to complete its premarket approval submission to the U.S. Food and Drug Administration (FDA) in Q1 next year.

“Over 49 million eligible people in the U.S. remain unscreened for colorectal cancer. We are confident that a high-sensitivity blood test can play a critical role in improving screening adherence rates by offering an accurate and convenient blood test to those reluctant to get screened,” said AmirAli Talasaz, Guardant Health co-CEO.

For Morgan Stanley analysts, the sharp pullback in Guardant stock offers a “compelling entry point.” The analysts rate GH with an Overweight rating and an $80 per share price target, which implies an upside potential of over 180% once the pre-market drop is taken into account.

Results were not as bad as the market reacted, they added, as 83% sensitivity is only “modestly lower” relative to expectations.

“While today’s results demonstrated overall sensitivity a couple percentage points below Street expectations, we see the data as sufficient to unlock a $2B+ opportunity (excluded from most consensus estimates),” the analysts said in a client note.

“We see a highly compelling entry point into a name that is extremely well positioned in the attractive liquid biopsy vertical, with room for multiple competitors in the space in light of the low levels of penetration today, in our view,” they concluded.

Goldman Sachs analysts agree with their MS colleagues. They say there is a “disconnect between market reaction to the data and scientific merit of the data,” as investors were too focused on the 85% sensitivity number, “which created an over/under, binary dynamic to the read out.”

“However, in regard to CMS and FDA the variation is less about the binary nature of above or below 85%, rather the bar is more about equal to or better than existing tests on the market. However, the level of ultimate adoption by doctors may be more sensitive to competitive dynamic of overall sensitivity level. We are positive overall about GH shares in the long term given the greater patient adherence of Shield (>90%) compared to Cologuard (per GH) despite Cologuard having a high sensitivity of 94% for Stage 1 and 2 CRC,” Goldman analysts told clients in a note.

Goldman Sachs rates Guardant Health stock as Buy with a $70 per share price target.

Guardant Health stock was already down almost 60% year-to-date (YTD) before yesterday’s announcement.