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On Tuesday, TD Cowen maintained a positive stance on Guardant Health (NASDAQ:GH) shares, as analyst Dan Brennan reiterated a Buy rating with a $56.00 price target. The healthcare diagnostics company, currently valued at approximately $5 billion, has seen its stock surge nearly 89% over the past year despite recent volatility. According to InvestingPro data, the company has demonstrated strong revenue growth of 31% in the last twelve months, though current valuations suggest the stock may be trading above its Fair Value. The firm’s confidence in the stock follows Guardant Health’s announcement that its blood-based colorectal cancer (CRC) test, Shield, has been approved as an Advanced Diagnostics Laboratory Test (ADLT). This approval allows the company to charge a higher rate of $1,495, compared to the previous Medicare rate of $920, for the remainder of the year under Medicare Fee-For-Service (FFS).
Starting April 1, the ADLT rate will be in effect, and for fiscal year 2026, the rate will be determined based on the median private-payer rates, with the new rate beginning on January 1, 2026, and lasting for a year. The current guidance for Shield in 2025, which estimates revenues of $25-$30 million from approximately 45,000 to 50,000 test volumes, did not account for the increased revenue from the new ADLT rate, and the timing was previously uncertain.
TD Cowen’s analysis suggests that applying the ADLT rate to approximately 70% of patient volumes, which is the majority of Shield volumes expected in the fourth quarter, could raise the average selling price to over $1,000 for 2025. This adjustment could potentially increase revenue estimates by 2.5-3%, depending on the Medicare mix assumptions, which could exceed 70%. Guardant Health is also making efforts to optimize for Medicare patients, which might increase this mix further.
The anticipated revenue boost of more than 2.5% is expected to be accretive to the gross margin, which is guided to be between 62-63%. This guidance aligns with the company’s current performance, as InvestingPro data shows a healthy gross profit margin of 60.79%. For investors seeking deeper insights, InvestingPro offers comprehensive analysis with 10+ additional ProTips and detailed financial metrics for Guardant Health. This increase would also positively impact the company’s financial burn rate, with an estimated $20 million or more in margin-accretive revenue relative to the guide, which represents a high single-digit percentage of TD Cowen’s estimated burn for 2025. This improvement is seen as independent of ongoing efforts to reduce the fixed costs of goods sold (COGS) associated with the Shield test.
Although there may be some reduction in the average selling price when the new rate is set for 2026, the current higher rate is considered a significant advancement in reducing the company’s burn rate ahead of schedule. While the company maintains a strong current ratio of 4.68 and operates with moderate debt levels, InvestingPro analysis indicates continued profitability challenges ahead. Investors can access the complete Guardant Health Pro Research Report, part of InvestingPro’s coverage of 1,400+ US stocks, for comprehensive insights into the company’s financial health and growth prospects.
In other recent news, Guardant Health has received significant attention following the announcement that its Shield blood test for colorectal cancer screening has been granted Advanced Diagnostic Laboratory Test (ADLT) status by the Centers for Medicare & Medicaid Services (CMS). This designation allows for a Medicare reimbursement rate of $1,495 for nine months starting April 1, 2025, which is expected to boost the company’s revenue and gross margins. Analysts from Citi and Raymond (NSE:RYMD) James have maintained positive ratings on Guardant Health, with Citi reiterating a Buy rating and Raymond James maintaining an Outperform rating, both citing the potential financial upside from the ADLT status.
In addition, Canaccord Genuity raised its price target for Guardant Health to $60, reflecting confidence in the company’s financial trajectory and anticipated higher profit margins. Morgan Stanley (NYSE:MS) also adjusted its price target to $52, maintaining an Overweight rating, indicating a positive outlook on the company’s growth potential. The recent fourth-quarter earnings for 2024 showed solid growth in clinical and biopharma test volumes, meeting previous forecasts and supporting the company’s revenue guidance for 2025.
Guardant Health’s management expects the Shield test to generate between $25 million and $30 million in revenue in 2025, based on conservative estimates. The company plans to use the favorable Medicare rate to expand its commercial infrastructure and increase the test’s availability. Analysts have noted the uniqueness of the Shield test and its impact on Guardant Health’s financials, with expectations of continued growth in the market.
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