KeyBanc lifts Castle Biosciences target to $36 on test growth

Tuesday, KeyBanc Capital Markets affirmed a positive outlook on Castle Biosciences (NASDAQ:CSTL), increasing the price target to $36 from the previous $28 while maintaining an Overweight rating on the stock. The upgrade reflects the company's strong quarterly performance and the anticipated growth in its diagnostic test offerings.

Castle Biosciences has demonstrated expansion in its test volumes, notably with IDgenetix and TissueCypher. These tests have significantly contributed to the company's robust results for the quarter. In light of this performance, Castle Biosciences has also raised its revenue guidance.

The analyst from KeyBanc pointed out that while the determination of coverage for the company's SCC test remains a key focus, Castle Biosciences is optimistic about a favorable decision from Novitas on genetic testing.

This decision could impact the company's SCC test, and although the Centers for Medicare & Medicaid Services (CMS) has extended the coverage decision deadline to an unspecified date, the updated revenue guidance includes payments anticipated through the end of the year.

In conclusion, KeyBanc has revised its model to reflect the third-quarter results of 2024 and the new guidance provided by Castle Biosciences. The firm's decision to raise the price target is also influenced by the growing adoption of the company's tests beyond the SCC test, signaling confidence in Castle Biosciences' market position and future performance.

In other recent news, Castle Biosciences has reported significant growth in the third quarter, with a 39% increase in revenue to $85.8 million, primarily driven by a rise in test volume and higher selling prices for its DecisionDx-SCC test. This robust performance has led the company to update its full-year revenue guidance to a range between $320 million and $330 million.

Analyst firm Baird has increased Castle Biosciences' stock price target to $39.00, maintaining an Outperform rating. Similarly, Canaccord Genuity has reaffirmed a Buy rating and a $42.00 price target, expressing confidence in the potential for TissueCypher, one of the company's products, to generate substantial revenue growth over time.

Despite challenges in reimbursement for certain medical tests, Castle Biosciences continues to pursue discussions to secure coverage, emphasizing the value of these tests in patient care. However, the timing of a reimbursement decision from Novitas for DecisionDx-SCC remains uncertain. The company is planning to launch a new test by the end of 2025 and is focusing on strategic investments for long-term growth.

InvestingPro Insights

Castle Biosciences' recent performance and KeyBanc's optimistic outlook are further supported by real-time data from InvestingPro. The company's market cap stands at $926.41 million, reflecting its significant presence in the diagnostic testing market. Castle Biosciences has demonstrated impressive revenue growth, with a 62.43% increase in the last twelve months as of Q3 2024, and a 39.5% quarterly growth in Q3 2024. This aligns with the analyst's observations on the company's expanding test volumes and raised revenue guidance.

InvestingPro Tips highlight that Castle Biosciences holds more cash than debt on its balance sheet, indicating a strong financial position. This financial stability could support the company's ongoing expansion of diagnostic test offerings. Additionally, the stock has shown a strong return over the last year, with a 87.1% price total return, suggesting investor confidence in the company's growth trajectory.

For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Castle Biosciences, providing deeper insights into the company's financial health and market position.

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