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On Tuesday, JPMorgan analyst Rachel Vatnsdal revised the firm’s stance on Tempus AI Inc (NASDAQ:TEM), downgrading the stock from Overweight to Neutral. Despite the downgrade, the price target was increased to $55.00, up from the previous $50.00. The adjustment follows Tempus AI’s recent fourth-quarter earnings report, which aligned with their pre-announcement at JPMorgan’s conference. According to InvestingPro data, the stock has experienced a significant -15.11% decline over the past week, with analyst targets now ranging between $50 and $74. Although the company experienced a slight revenue shortfall due to weakness in its non-core business, it has raised its 2025 revenue guidance to approximately $1.24 billion. This updated forecast includes contributions from Ambry Genetics, acquired on February 3, 2025, and surpasses the prior estimate of around $1.23 billion. Additionally, the company anticipates an adjusted EBITDA of $5 million for the current year, revising its previous expectation of achieving positive adjusted EBITDA.
Tempus AI’s management expects its core business to grow by over 30% year-over-year, which is slightly below JPMorgan’s estimate of 34%. This growth is anticipated to be driven by Average Selling Price (ASP) tailwinds from xT CDx Advanced Diagnostic Laboratory Tests (ADLT) and xF gapfill pricing benefits in the Genomics sector, along with continued momentum in Data & Services. Notably, the Insights revenue segment saw a 66% year-over-year increase in the fourth quarter of 2024. Ambry Genetics is also projected to experience a high-teens growth rate on an annualized basis.
The report from JPMorgan highlights Tempus AI’s sustainable Data & Service Revenue, encouraging ASP traction, and increasing profitability. However, recent AI-related headlines and increased retail interest, partly due to Nancy Pelosi’s call option purchases, have propelled Tempus AI’s stock by over 106% year-to-date. This surge significantly outperforms the XLV health care index’s 7% gain over the same period. Tempus AI’s valuation currently stands at approximately 11 times the 2025 estimated enterprise value to sales ratio (EV/Sales), which drops closer to 10 times when including the projected revenue from Ambry Genetics. This valuation contrasts with the diagnostics group average of around 6 times 2025 EV/Sales.
In conclusion, while JPMorgan acknowledges Tempus AI’s unique position at the intersection of diagnostics and data, the firm believes the stock is now fully valued relative to its peers. This perception is based on the recent run-up in share price, attributed to general market excitement around AI rather than fundamental factors. InvestingPro’s Fair Value analysis indicates the stock is currently overvalued, despite maintaining a strong financial position with a current ratio of 2.29 and moderate debt levels. Discover more detailed valuation insights and access the comprehensive Pro Research Report covering TEM and 1,400+ other US stocks on InvestingPro. As a result, the decision to downgrade the stock to Neutral is accompanied by a revised price target based on updated forecasts and discounted cash flow assumptions. For further details on Tempus AI’s performance and outlook, JPMorgan refers to its conference takeaways and the initiation report from July 2024.
In other recent news, Tempus AI Inc. reported its fourth-quarter earnings for 2024, revealing a significant revenue increase of 35.8% year-over-year, totaling $700 million. Despite this growth, the company’s earnings per share (EPS) came in at -0.18, which may have influenced the stock’s decline in after-hours trading. Tempus AI also completed the acquisition of Ambry Genetics, a strategic move expected to bolster its genomic profiling capabilities. Additionally, the company launched the Olivia AI personal health app, expanding its product offerings. Analysts from firms like Morgan Stanley (NYSE:MS) have noted the potential for future growth, although the integration of Ambry Genetics poses possible challenges. Tempus AI has projected revenue of $1.24 billion for 2025, with an expected adjusted EBITDA of $5 million. The company is optimistic about sustainable long-term growth, focusing on expanding its core business and investing in technology and research and development.
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