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On Wednesday, Scotiabank (TSX:BNS) analyst Sung Ji Nam revised the price target for Castle Biosciences (NASDAQ:CSTL) shares, lowering it to $40.00 from the previous $44.00, while continuing to endorse the stock with a Sector Outperform rating. Currently trading at $15.99, the stock appears undervalued according to InvestingPro analysis, with analyst targets ranging from $30 to $41. The adjustment follows Castle Biosciences’ decision to raise its full-year guidance, a move that comes despite certain setbacks.
Castle Biosciences, a company specializing in skin cancer diagnostics with an impressive gross profit margin of 81.94%, recently faced the discontinuation of Medicare reimbursement for its DecisionDx-SCC test as of April 24. Additionally, the company plans to cease its IDgenetix product line by May 2025. Despite these challenges, the company has seen robust performance from its TissueCypher test, which has emerged as a key growth driver. For deeper insights into Castle Biosciences’ financial health and growth prospects, InvestingPro subscribers can access 12 additional exclusive ProTips and comprehensive analysis.
The company’s decision to acquire Previse, a privately-held firm developing cancer prognostic and diagnostic tests, aims to bolster its TissueCypher platform. This technology, licensed from Johns Hopkins, is expected to enhance Castle Biosciences’ offerings in esophageal cancer care and potentially expand into other gastrointestinal diseases.
TissueCypher’s volume exhibited a year-over-year increase of 117% in the first quarter of 2025, building on a 130% growth rate in 2024. Scotiabank’s analysis suggests that TissueCypher could generate revenues of approximately $100 million for Castle Biosciences in the current year. The bank’s revenue growth model for the company, excluding DecisionDx-SCC and IDgenetix, projects an increase of around 19% for 2025 and 18% for 2026.
Castle Biosciences is also on schedule to introduce a therapy guidance test for atopic dermatitis by the end of 2025. However, Scotiabank’s price target is primarily based on the prospects of the TissueCypher product. The company’s strong financial position is reflected in its exceptional current ratio of 9.37 and minimal debt-to-equity ratio of 0.06. The company reported having approximately $275 million in cash reserves at the close of the first quarter of 2025 and anticipates maintaining a positive adjusted EBITDA throughout the year. Get access to Castle Biosciences’ complete financial analysis and detailed Pro Research Report through InvestingPro, part of our coverage of over 1,400 US stocks.
In other recent news, Castle Biosciences reported a 21% year-over-year increase in revenue for the first quarter of 2025, reaching $88 million, although earnings per share (EPS) fell short of expectations at -$0.20 compared to the forecasted -$0.06. The company has raised its revenue guidance for the year to between $287 million and $297 million. Castle Biosciences has also acquired Previse, a company specializing in gastrointestinal diagnostics, to enhance its product portfolio, although this acquisition is not expected to immediately impact revenue. KeyBanc Capital Markets maintained an Overweight rating on the company with a $36 price target, highlighting strong growth in TissueCypher test volumes. Meanwhile, BTIG adjusted its price target for Castle Biosciences shares to $32 from $40 but maintained a Buy rating, citing the acquisition of Previse as a strategic move. In addition, Castle Biosciences confirmed the efficacy of its DecisionDx-UM test for uveal melanoma through independent validation, further supporting its use in refining metastatic risk prediction. Despite some challenges with reimbursement for certain tests, the company is optimistic about its growth trajectory and strategic initiatives.
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