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Guardant Health Earnings: Firm Reaps Volume Growth Benefits as Liquid Biopsy Trends Continue

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Securities In This Article
Guardant Health Inc
(GH)

No-moat Guardant Health GH posted strong second-quarter results that were about in line with our expectations. Solid volume growth drove revenue up 26% year over year and pushed management to lift full-year guidance. While we have slightly raised our full-year 2023 revenue growth forecast on a strong first-half performance, we maintain our longer-term growth assumptions, and therefore there is no material change to our $63 fair value estimate. Shares remain significantly undervalued at current prices.

Steady growth in Guardant’s therapy selection liquid biopsy offering aided the resilient topline result over the quarter, exemplified by 49% volume growth year over year in clinical testing. The firm’s colorectal cancer detection test (currently awaiting U.S. Food and Drug Administration approval) looks likely to accelerate growth of Guardant’s already strong blood-based testing offering and help the firm establish a leading position in the growing liquid biopsy cancer testing market. Though volumes remain robust, the firm still faces some profitability pressures from a different product mix compared with the prior-year period, as gross margin shrunk roughly 500 basis points year over year. Pricing tailwinds from key second-quarter reimbursement decisions should eventually help to alleviate some of these pressures.

Given the strong sales momentum in the first half of 2023, we increased our 2023 revenue growth estimate about 200 basis points to 21%, which is in line with management’s updated guidance of 21%-22% revenue growth. The strong volume growth in the therapy selection product portfolio may lead to cash flow breakeven in this segment by the end of 2023. However, management maintained its $350 million cash burn rate assumption for the full business in 2023, which is still similar to our projection. We expect the firm to continue investing heavily in innovation and commercialization to expand in the nascent liquid biopsy industry.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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