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Why You Should Retain Pacific Biosciences (PACB) Stock Now

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Pacific Biosciences of California, Inc.  (PACB - Free Report) is well poised for growth, backed by a robust progress in its Sequel System as well as its sequencing technology. However, tough competition remains a concern.

Over the past three months, shares of the company have gained 207.1% compared with the industry’s growth of 5.6%.

The company with a market capitalization of $6.65 billion develops, manufactures and markets sequencing systems. Moreover, it has a trailing four-quarter earnings surprise of 28.6%, on average.

Let’s take a closer look at the factors that substantiate its current Zacks Rank #3 (Hold) status.

Sequel System Drives Growth: Pacific Biosciences’ flagship platform, the Sequel system,is steadily fortifying the company’s footprint worldwide. Sequel system is a nucleic acid sequencing platform based on Single Molecule, Real-Time (SMRT) Sequencing technology. The Sequel System is a key consistent contributor to Pacific Bioscience’s top line.

The company installed 20 Sequel II systems during the third quarter of 2020, thus growing the installed base of Sequel II by 14% to 168 as of Sep 30. Utilization of installed Sequel II systems returned to similar or even higher than the pre-pandemic levels. Continual positive customer reception of the Sequel II systems is also encouraging. Management expects the proportion of consumable revenues from Sequel II systems to continue to grow as the installed base for Sequel II constantly expands.

In October 2020, the company introduced the Sequel IIe System, the next instrument evolution powered by its SMRT Sequencing technology. The new Sequel IIe System makes HiFi sequencing accessible to any project where high accuracy, long read lengths and affordability are crucial. This development is expected to boost Pacific Biosciences’ flagship platform, the Sequel system.

Unique Technology: Pacific Biosciences’ SMRT sequencing technology has some inherent advantages over the first and second-generation sequencing techniques.

In October 2020, the company inked a research collaboration deal with Invitae, focusing on investigating its clinically-relevant molecular targets for use in the development of advanced diagnostic testing for epilepsy. To support this collaboration, Invitae is widening the scope of its PacBio sequencing capacity to meet growing demand for clinical applications, which are dependent on highly accurate genomic information. In the same month, Children’s Mercy Kansas City, one of the nation’s top pediatric medical systems, entered into a collaboration with Pacific Biosciences. The aim of this deal is to further understand the most challenging pediatric diseases using PacBio’s highly accurate HiFi sequencing technology.

 

What’s Deterring the Stock?

Cutthroat Competition: The DNA sequencing market is highly competitive due to the presence of established players like Illumina and Thermo Fisher Scientific Inc. Low-cost sequencing products from Illumina continue to gain traction, which is a headwind to the company. Moreover, Pacific Biosciences is a relatively small company in comparison to these second-generation sequencing technology firms.

Which Way are Estimates Headed?

For 2020, the Zacks Consensus Estimate for revenues is pegged at $75.1 million. The same for earnings stands at 17 cents per share, suggesting a growth of 130.9% from the year-ago reported figure.

Key Picks

Some better stocks from the broader medical space are Hologic (HOLX - Free Report) , PerkinElmer and IDEXX Laboratories (IDXX - Free Report) . While Hologic flaunts a Zacks Rank of 1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy), presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hologic has a projected long-term earnings growth rate of 17.4%.

PerkinElmer has a projected long-term earnings growth rate of 19.5%.

IDEXX has an estimated long-term earnings growth rate of 15.8%.

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