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, is expected to contribute further. However, stiff competition and macroeconomic concerns persist.

In the year-to-date period, this Zacks Rank #3 (Hold) company has lost 83.7% against 2.1% growth of the industry. The S&P 500 composite has also gained 8.9% in the said 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 its strong performance going forward. PacBio's earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and met the same in one, delivering an average surprise of 11.61%.

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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. PacBio scaled the manufacturing of the Onso platform during the first quarter, enabling it to deliver instruments based on demand much more rapidly. This strengthened 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 versus competitive offerings. Per 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 long-read platform, whose throughput exceeds 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. The company recently announced the PureTarget repeat expansion panel, a new approach that enables thorough examination of 20 genes linked to severe neurological conditions, including difficult-to-sequence genes with tandem repeat expansions.

In June, PacBio and Form Bio, a provider of advanced computational life sciences technology, came together and announced a range of new initiatives intended toward advancing and unifying the Adeno-associated virus industry.

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 — the HiFi Prep Kit 96 and the HiFi Plex Prep Kit 96 — optimized for its Revio sequencing system.

PacBio is also continuously collaborating with several companies to expand the reach and access of its products. Last month, it signed an agreement with Novogene, a Chinese company providing genomics services and solutions. Per the terms of the agreement, Novogene will use Revio long-read sequencing system to expand the capabilities of its new lab in Munich, Germany.

Decent Q1 Results: PacBio exited the first quarter of 2024 with decent results, wherein earnings were in line 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 was also promising. Continued strong prospects in the Revio system, with customers placing orders, looked assertive.

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 might affect its revenues and operations throughout 2024.

Business Seasonality: Sales of the company's sequencing instruments vary on a quarterly or yearly basis, which contributes to the lengthy sales cycle and increases the magnitude of quarterly or annual fluctuations in its operating results.

Estimate Trend

PacBio has been witnessing a stable estimate revision trend for the second quarter of 2024, ahead of its earnings. Over the past seven days, the Zacks Consensus Estimate for its adjusted loss per share is pinned at 24 cents.

The Zacks Consensus Estimate for revenues is pegged at $40.5 million, indicating a 14.8% decrease from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space that have announced quarterly results are Universal Health Services UHS, Boston Scientific BSX and Ecolab ECL.

Universal Health Services, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 19%.

UHS' earnings surpassed estimates in each of the trailing four quarters, the average surprise being 14.58%.

Its shares have rallied 39.2% year to date compared with the industry's 30.8% growth.

Boston Scientific, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 12.6%. BSX's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.

Boston Scientific's shares have risen 27.6% year to date compared with the industry's 3.2% growth.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 14.9%. ECL's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 0.98%.

Ecolab's shares have rallied 17.8% year to date against the industry's 21.2% decline.

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