Pacific Biosciences has ups and downs in 2021

Stock Fluctuation

In February shares of Pacific Biosciences of California Inc., aa genome sequencing company, rose 22.3 percent before the genetic analysis company’s fourth-quarter report and after the announcement that Japan-based Softbank Group Corp. invested $900 million in the company, as reported in MarketWatch. (https://www.marketwatch.com/story/pacific-biosciences-stock-rockets-ahead-of-earnings-after-softbank-makes-900-million-investment-2021-02-10?mod=mw_quote_news) The stock increased 230.0 percent over the prior three months and 1,051.7 percent over the previous year.

Pacific Biosciences said that Softbanks investment will have an initial conversion price of $43.50. Akshay Naheta, chief executive of Softbank’s SB Management, said, “We believe that PacBio’s HiFi sequencing will be the de facto standard tool for population genomics fundamentally altering the practice of healthcare.” Pacific Biosciences reported fourth-quarter earnings of 43 cents a share on revenue of $24.05 million, after breaking even on a per-share basis on revenue of $27.93 million, in the same period in 2020.

Jason Hawthorne of The Motley Fool had a different take. He explained that Illumina was considered the market leader in genome sequencing and Pacific Biosciences “an also-ran since it went public in 2010.” He added that since new leadership came in and there was a product update, PacBio shares have jumped by 700 percent since the beginning of August. The Federal Trade Commission (FTC) nixed a merger between Illumina and Pacific Biosciences in January 2020,and Illumina paid Pacific Biosciences a $98 million termination fee. Then PacBio announced a new CEO last August, a new CFO in September and a new COO and chief commercial officer during the fourth quarter. The company launched its Sequel IIe system, which reduced the cost and data processing requirements for long-read sequencing. After the recent increase in the stock price, PacBio’s market capitalization has grown by a greater percentage than Illumina’s over the past decade. (https://www.fool.com/investing/2021/02/02/is-pacific-biosciences-of-california-a-ticking-tim/)

Hawthorne said that PacBio’s customers are reopening from shutdowns, and utilization of its systems is back to pre-pandemic levels, but COVID-19 delayed several large projects and stopped the typical government orders at the end of the fiscal year. The merger termination fee from Illumina gave the company a chance to accumulate more than $200 million in cash at the end of the third quarter, and it added $87 million by selling more shares in November. Still, PacBio is betting that its new instrument can increase the number of applications where long-read sequencing is cost-effective. It will require customers to buy additional equipment, which can be a harder sell in times of economic uncertainty. Long-read gene sequencing may be essential for reading some portions of the genome, but Illumina or other companies could counter PacBio with entries of their own.

After a month went by since the last earnings report for Pacific Biosciences of California, Zacks Equity Research reported that shares have lost about 30.6 percent in that time frame, underperforming the S&P 500. PacBio’s reported fourth-quarter 2020 adjusted earnings per share was 37 cents. The company reported break-even results in the year-ago quarter. The Zacks Consensus Estimate was 43 cents per share. For 2020, earnings per share were 17 cents, in line with the Zacks Consensus Estimate. The company reported a loss of 55 cents per share in the year-ago time frame. (https://www.zacks.com/stock/news/1278421/pacific-biosciences-pacb-down-306-since-last-earnings-report-can-it-rebound?cid=CS-CNN-HL-realtime_blog-1278421)

The Zacks report also said that for the fourth quarter, PacBio revenues were $27.1 million, which missed the Zacks Consensus Estimate by a marginal 0.4 percent and also decreased 2.9 percent from the year-ago quarter’s tally. For 2020, revenues were $78.9 million in line with the Zacks Consensus Estimate, and the topline dropped 13.2 percent year over year. Product revenues were $23.6 million, down 4.1 percent from the prior-year quarter. Service and other revenues came in at $3.5 million, up 2.9 percent year over year. Gross profit in the fourth quarter was $11.4 million, down 11.8 percent year over year. Gross margin was 42 percent of total revenues, contracting 429 basis points. Operating expenses totaled $35.4 million, up 14.7 percent year over year. Operating loss was $23.9 million, wider than the year-ago quarter’s loss of $17.9 million. PacBio ended the fourth quarter with cash, cash equivalents and investments excluding restricted cash of $318.8 million compared with $49.1 million at the end of the year-ago period.

However, according to Zacks, fresh estimates have trended downward during the past month. The consensus estimate has shifted -249.21 percent because of these changes. The report concluded, “Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Pacific Biosciences has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.”

On March 25 Isaac Mitchell wrote in Marketing Sentinel that for PacBio, “analysts’ consensus is at an average recommendation of Overweight while assigning it a mean rating of 2.4. Splitting up the data highlights that, out of 5 analysts covering the stock, none rated the stock as a Sell while none recommended an Overweight rating for the stock. 2 suggested the stock as a Hold whereas 3 see the stock as a Buy. None analyst(s) advised it as an Underweight. The company is expected to be making an EPS of -$0.39 in the current quarter.” (https://marketingsentinel.com/2021/03/25/pacific-biosciences-of-california-inc-nasdaqpacb-has-recovered-91-43-so-far-but-another-81-2-gain-cannot-be-ruled-out/ )

He added, “In the face of being in the red during last session for losing -9.28%, in the last five days PACB remained trading in the green while hitting it’s week-highest on Tuesday, Mar 23 when the stock touched $35.55- price level, adding 16.65 percent to its value on the day. Pacific Biosciences of California, Inc.’s shares saw a change of 14.23 percent in year-to-date performance and have moved -14.93 percent in past 5-day. Pacific Biosciences of California, Inc. showed a performance of -17.12 percent in past 30-days. Number of shares sold short was 8.9 Million shares which calculate 1.66 days to cover the short interests.”

Mitchell wrote that Wall Street analysts have predicted a consensus price target of $50.8 to the stock, which would mean an increase of 71.45 percent to its current value. The analysts have been predicating $45 as a low price target for the stock while putting it at a high target of $62. It would make sense that stock’s current price would rise +109.25 percent in reaching the projected high whereas falling to the targeted low would imply a loss of 51.87 percent for stock’s current value.

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