Reasons to Retain PacBio Stock in Your Portfolio Now

Pacific Biosciences of California, Inc. PACB, popularly known as PacBio, has been gaining from its continued focus on research and development. The optimism led by a decent first-quarter 2024 performance and its product development activities are expected to contribute further. However, stiff competition and macroeconomic concerns persist.

In the year-to-date period, this Zacks Rank #3 (Hold) stock has lost 87.8% against 5.4% growth of the industry. The S&P 500 Composite also gained 15% in the same time frame.

The renowned global provider of sequencing systems has a market capitalization of $373.1 million. The company projects 18% growth for 2024 and expects to maintain a strong performance in the future. PacBio's earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with third-quarter earnings being in line, delivering an average surprise of 11.6%.

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Let's delve deeper.

Focus on R&D: We are optimistic about PacBio's continued R&D efforts that focus on programs to develop new and existing platforms, as well as increasing throughput and decreasing costs on behalf of its customers.

PacBio is working toward improving commercial execution to drive the adoption of both the Revio and Onso platforms. With respect to Onso, in the first quarter, PacBio scaled the manufacturing of the platform, enabling it to deliver instruments based on demand much more rapidly, which aided in its ability to sell the system.

Per management, PACB is also developing a high-throughput short-read platform that is expected to enable the company to serve high-throughput labs with PACB's leading Sequencing by Binding technology. The company believes that it will be highly competitive in terms of both throughput and cost relative to other high-throughput offerings. Per the management, the addressable market for this platform is estimated to be more than $1 billion per year.

PacBio also continues to develop its next-generation SMRT cell. This cell is expected to power a new, extremely high-throughput long-read platform, enabling throughput dramatically higher than that of the Revio system.

Product Development Activities: We are optimistic about PacBio's solid potential in the RNA-sequencing market, which has been fortifying the company's footprint worldwide. PacBio recently announced the PureTarget repeat expansion panel, a new approach that makes it possible to thoroughly examine 20 genes linked to severe neurological conditions, including difficult-to-sequence genes with tandem repeat expansions, is now possible.

In March, PacBio announced the PureTarget repeat expansion panel, a new solution designed to enable the comprehensive analysis of 20 genes associated with serious neurological disorders. In February, the company announced two new high throughput library preparation kits and workflows optimized for its Revio sequencing system — the HiFi Prep Kit 96 and the HiFi Plex Prep Kit 96.

In January, PacBio announced PanDNA, a versatile Nanobind DNA extraction kit designed to efficiently extract high-quality, high molecular weight DNA across a wide range of sample types, including cells, bacteria, blood, tissue, plant nuclei and insects.

PacBio is also continuously enhancing its software, along with launching new library prep and sample prep solutions that would make PacBio sequencing more accessible. Management believes that the new products may contribute to a recurring revenue stream apart from the core SMRT cells and sequencing reagents.

Decent Q1 Results: PacBio exited the first quarter of 2024 with decent results where earnings aligned with the Zacks Consensus Estimate and revenues beat the same.

PACB saw an uptick in Product as well as Consumables revenues. Strong geographical performances in the Asia-Pacific region and EMEA were also encouraging. The expansion of adjusted gross margin also raises optimism. Continued strong prospects in the Revio system, with customers placing orders, looked promising for the stock.

Downsides

Macroeconomic Concerns: Macroeconomic dynamics, including rising inflation and global supply-chain constraints, have negatively impacted PacBio's customers and lengthened customer sales cycles. These factors could affect its revenues and operations throughout 2024.
Business Seasonality: PacBio operates on a December year-end basis and believes that there are significant seasonal factors that may hinder sales of its products, and particularly its sequencing instruments, to vary on a quarterly or yearly basis, contributing to the lengthy sales cycle for its sequencing instruments, and increase the magnitude of quarterly or annual fluctuations in its operating results.

Estimate Trend

PacBio has been witnessing a positive estimate revision trend for 2024. Over the past 60 days, the Zacks Consensus Estimate for its adjusted loss per share has narrowed from $1.00 to 91 cents.

The Zacks Consensus Estimate for the company's fiscal 2024 revenues is pegged at $177.5 million, indicating an 11.5% decrease from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space that have announced quarterly results are DaVita, Ecolab and Universal Health Services.

DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. DVA's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%.

DaVita's shares have gained 44% compared with the industry's 20.4% rise in the past year.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.3%. ECL's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 1.7%.

Ecolab's shares have rallied 33.8% against the industry's 9.3% decline in the past year.

Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank #2 at present. UHS has an estimated earnings growth rate of 30.5% for 2024.

UHS' earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.

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