Veracyte VCYT is well-poised to grow in the upcoming quarters due to the continued strong performance of the Afirma and Decipher tests. A strong solvency position further adds optimism to the stock. However, headwinds from the ongoing biopharma challenges and broader macroeconomic issues pose risks for the company’s operations.

In the past year, this Zacks Rank #1 (Strong Buy) stock has outperformed the industry and the S&P 500. Shares have surged 67.3% compared with the industry’s 5.9% growth and the S&P 500 composite’s 24.4% rise.

The renowned diagnostics company has a market capitalization of $3.26 billion. The company’s earnings yield of 2.37% is well ahead of the industry’s 3.3% yield. In the trailing four quarters, VCYT delivered an average earnings surprise of 520.6%.

Positives for VCYT Stock

Afirma Continues to Outperform: Veracyte’s comprehensive Afirma solution, consisting of the Afirma GSC (Genomic Sequencing Classifier) and the Afirma Xpression Atlas, efficiently addresses the complex landscape in thyroid nodule diagnosis. About 15,100 Afirma test results were reported by the company in the third quarter of 2024, a 12% uptick banking on the growing number of new customers and the retention of old customers.

Meanwhile, Veracyte is gaining market share for the test as more people become aware of the compelling evidence supporting its quality and performance. The company is also hopeful about its research-use-only (RUO) Afirma GRID offering, which is expected to help Veracyte expand in the endocrinology market. Taking into account the strong momentum of 2024 as well as the expanded indication, Veracyte currently expects Afirma to continue to demonstrate strong growth of high single digits in 2025.

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Strength of the Decipher Franchise: One of the principal sources of revenues for the company, the Decipher Prostate cancer tests are developed through whole-transcriptome analysis and machine learning to predict a patient’s risk of progressing to metastatic disease within five years, which helps physicians determine the right treatment plan. Veracyte achieved a new volume record of 21,250 tests in the third quarter of 2024, with growth across all National Comprehensive Cancer Network or NCCN’s localized risk categories.

With the updated NCCN guidelines in place now, Veracyte is driving adoption through awareness and education on the test utility and clinical evidence. In addition, the company is addressing the worrying trend of high-risk prostate cancer by developing and validating the Decipher offering for patients with advanced-stage, metastatic and castrate-resistant prostate cancer.

Favorable Liquidity Position: Veracyte exited the third quarter with cash and cash equivalents of $274 million (compared to $236 million at the end of the second quarter) and no current debt, reflecting strong solvency.  The company’s ability to cover near-term obligations is further supported by a strong current ratio of 5.08 compared to the second-quarter 2024 ratio of 4.44. Consistent with the past quarters, it did not report any long-term debt at the end of the quarter under review.

Concerns for Veracyte

Macro Issues Hurt Growth: Veracyte’s operations are susceptible to macroeconomic challenges, such as ongoing interest rate increases and inflation in the United States and global markets, as well as turmoil in the global banking and finance system, among others. Further, the ongoing geopolitical uncertainties and supply disruption can potentially hamper the company’s profit margin.

Biopharma Headwinds Remain: Veracyte is experiencing significant declines in biopharma and other services revenues due to reductions in customer projects, extended sales cycles and overall spending constraints across the industry. While it continued to offer these services to pharmaceutical partners, the success of the Biopharma business depends on the company’s ability to find and negotiate with suitable pharma partners. However, there is no guarantee that Veracyte will be successful in these efforts or that existing partnerships will remain in place.

VCYT Stock Estimate Trend

In the past 30 days, the Zacks Consensus Estimate for Veracyte’s EPS has increased from 93 cents to $1.12.

The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $443.9 million. This suggests a 22.9% rise from the year-ago reported number.

Other Top MedTech Stocks

Some other top-ranked stocks in the broader medical space are Phibro Animal Health PAHC, Boston Scientific BSX and Cardinal Health CAH.

Phibro Animal Health has an estimated fiscal 2025 earnings growth rate of 54.6% compared with the industry’s 14.7%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 27.1%. Its shares have surged 83.3% compared with the industry’s 12.3% growth in the past year.

PAHC sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific, carrying a Zacks Rank #2 (Buy), has an earnings yield of 2.7% compared with the industry’s 1.3%. Shares of the company have rallied 60.2% compared with the industry’s 12.3% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.

Cardinal Health, carrying a Zacks Rank #2 at present, has an earnings yield of 6.3% compared with the industry’s 5.8%. Shares of the company have rallied 20.7% against the industry’s 2.9% fall. CAH’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 9.6%.

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