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Here's Why You Should Retain Pacific Biosciences For Now

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Pacific Biosciences of California, Inc. (PACB - Free Report) continues to benefit from innovative product portfolio, Sequel system – Pacific Biosciences’ flagship platform and promising Asian markets. However, contraction in gross margin remains a concern.

The stock carries a Zacks Rank of 3 (Hold).

Price Performance

Shares of Pacific Biosciences have gained 11.9% in a year’s time, against the industry’s decline of 4.8%. Meanwhile, the S&P 500 Index rallied 2.3% in the same time period.



What’s Deterring the Stock?

Pacific Biosciences has been witnessing contraction in gross margin over a considerable period of time. In the second quarter of 2019, gross margin was 39% of total revenues, contracting 210 bps from the year-ago quarter.
Moreover, operating expenses totaled $33.9 million, which improved 11.1% year over year.

What’s Favoring the Stock?

Pacific Biosciences continues to benefit from innovative product portfolio that has been boosting its performance for quite some time now. Moreover, new developments in products instill optimism in the stock.

With respect to such developments, the company has obtained average sequencing read links approaching 100 kilobases sequencing yield for SMRT cell exceeding 40 gigabases. These substantial developments open up new opportunities for SMRT Sequencing and are likely to expand the company’s product spectrum.

Pacific Biosciences’ flagship platform — the Sequel system — has been strengthening its presence global. Sequel system is a nucleic acid sequencing platform based on SMRT technology. The Sequel System has been a significant contributor to Pacific Bioscience’s top line.

In the recent past, the company unveiled the upgraded Sequel System and new multiplexing tools at the American Society for Microbiology to make the process of obtaining microbial genomes accurate, faster and more affordable. We expect the Sequel system’s higher throughput, scalability, lower upfront capital investment, and smaller size and weight will attract cost-sensitive customers.

Pacific Biosciences continues to see solid demand for SMRT sequencing in Asia. The company also witnesses significant strength in its China business. Moreover, Novogene has become Pacific Biosciences’ largest customer worldwide. The facility is located in Nanjing China and houses 20 sequel systems.

Which Way Are Estimates Headed?

For 2019, the Zacks Consensus Estimate for revenues is pegged at $99.9 million, indicating an improvement of 27.1% from the year-ago period. The same for earnings stands at a loss of 64 cents per share.

Key Picks

Some better-ranked stocks from the broader medical space are Baxter International Inc. (BAX - Free Report) , Amedisys, Inc. (AMED - Free Report) and CONMED Corporation (CNMD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Baxter has a long-term earnings growth rate of 12.8%.

Amedisys has a long-term earnings growth rate of 16.3%.

CONMED has a long-term earnings growth rate 14.9%.

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