Tempus AI, Inc.’s TEM investors have been encountering short-term losses from the stock of late. Shares of the Chicago, IL-based healthcare technology company focused on adopting artificial intelligence (AI) to advance precision medicine and patient care have plunged 28.9% in the past three months, underperforming the industry’s 0.6% gain. In the same time frame, the stock underperformed the sector and S&P 500’s 12.4% loss and 5.1% growth, respectively.

Two major developments from TEM this month include the announcement of the impact of a new decision by the Centers for Medicare and Medicaid Services (CMS) that will allow reimbursement for assessments of cardiac dysfunction using the Tempus ECG-AF algorithm and the inking of agreements for in-network provider status with Blue Cross Blue Shield (BCBS) of Illinois, Blue Shield of California and Avalon Healthcare Solutions.

As part of the agreement with Avalon, Tempus is a participating provider with BCBS North Carolina, BCBS South Carolina, BCBS Vermont, Capital BlueCross and CareSource in four markets. Per Tempus AI’s management, the patients with these insurance plans will now have access to Tempus testing as a participating provider.

Moreover, the recent favorable reimbursement for assessments of cardiac dysfunction using the Tempus ECG-AF algorithm by CMS will likely allow Tempus to aid clinicians in identifying patients at increased risk of atrial fibrillation/flutter.

Tempus AI's Three Months Price Comparison

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Over the past three months, the stock’s performance has remained bleak, unlike its peers like Labcorp Holdings Inc. LH and Illumina, Inc. ILMN. ILMN’s shares have gained 7%, while LH’s shares have risen 4.2% in the same time frame. However, TEM’s performance is more encouraging than that of its other peer, Myriad Genetics, Inc. MYGN. MYGN’s shares have plunged 47.7% over the past three months.

Despite the rising adoption of AI and the potential in precision medicine driven by a growing addressable market, the downward estimates indicate that the company might not be able to overcome the negative market momentum any time soon.

TEM expects revenues for the full year to be approximately $700 million, representing growth of 32% from the comparable 2023 period. The Zacks Consensus Estimate for the time frame is currently pegged at $698.5 million, indicating an improvement of 117.8% from the comparable 2023 period.

Tempus AI is currently working toward advancing precision medicine through the practical application of AI in healthcare. It provides AI-enabled precision medicine solutions to physicians to deliver personalized patient care and, in parallel, facilitates the discovery, development and delivery of optimal therapeutics.

In recent months, TEM has continued to focus on strengthening its product portfolio, and the progress has been evident so far. Given this, the stock seems well-positioned to navigate the current macroeconomic climate.  

TEM’s Strong Fundamentals Weigh In

Tempus AI is currently focused on enhancing its product offerings by continuing to spend money on research and development activities. Last month, the company announced the clinical launch of its Immune Profile Score algorithmic test. TEM expects to maintain high levels of investment in product innovation over the coming years as it continues to develop new laboratory assays, develop algorithms and expand its Platform into new disease areas.

Tempus AI’s Platform plays a key role in driving its business. Management expects to continue to make significant investments in its Platform to continually improve the user experience and enable the company to generate, ingest and structure data more efficiently as it expands its offerings.

The company has a history of various strategic collaborations and buyouts that have boosted its operations. Last month, TEM announced the collaboration with Flatiron Health to integrate its comprehensive genomic testing directly into Flatiron’s cloud-based Electronic Medical Record (EMR) platform, OncoEMR, through the Molecular Profiling Integration. During the third quarter of 2024, Tempus AI entered into an agreement to acquire Ambry Genetics, which will likely provide it with expanded testing capabilities for inherited cancer risk.

Tempus AI’s Payer Coverage and Reimbursement

Tempus AI’s financial performance relies heavily on its ability to secure reimbursement from payers and government health benefits programs. A substantial majority of the genomic testing it performs is clinical in nature, and it typically receives reimbursement for these tests from commercial payers and government health benefits programs, such as Medicare and Medicaid. Management plans to continue to invest significantly in various efforts aimed at improving TEM’s average reimbursement, including performing clinical studies to generate evidence of clinical utility, seeking regulatory approval for its tests and opening additional lab locations.

TEM’s Stock Valuation

Tempus AI’s forward 12-month P/S of 6.1X is higher than the industry’s average of 3.3X but is lower than its six-month median of 8.9X.

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Tempus AI’s Estimate Movement

Estimates for TEM’s 2024 loss per share have narrowed from $2.64 to $1.51 in the past 60 days.

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Our Final Take

There is no denying that Tempus AI sits favorably in terms of core business strength, earnings prowess, robust financial footing and global opportunities. The Zacks Rank #3 (Hold) stock’s strong core growth prospects present a good reason for existing investors to retain shares for future gains despite the current slump in share prices. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For those exploring to make new additions to their portfolios, the valuation indicates superior performance expectations compared with its industry peers. TEM’s stock valuation is below its six-month median valuation, which suggests potential room for growth if it can align more closely with overall market performance. However, if investors are already holding the stock, it would be prudent to hold on to it at present. The favorable Zacks Style Score with a Growth Score of A suggests continued uptrend potential for TEM.

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