Guardant Health Delivers Strong Top-Line Growth in Q4

Guardant Health GH delivered decent fourth-quarter and full-year results. Although top-line growth was strong, margins remained compressed relative to the prior year, and the firm’s 2023 revenue outlook came in slightly below our projections. Nevertheless, at first glance we are maintaining our $63 fair value estimate due to our assumptions around the company’s long-term prospects in early cancer detection, and we continue to believe the shares are significantly undervalued. Our moat rating remains none on this early-stage company, but we are still optimistic about Guardant’s liquid biopsy pipeline for early cancer detection. Up first, Shield still has the potential to be the first Food and Drug Administration-approved, Medicare-reimbursed blood test for colorectal cancer screening, which is reflected in our positive moat trend rating.

In the quarter, the precision oncology segment drove revenue growth of 17% from an increase in clinical testing and biopharma sample volume, helping the firm increase revenue 20% for 2022. By segment in 2022, precision oncology grew 29% year over year, while the development services segment was hurt by the discontinuation of Guardant-19 and changes in collaboration projects and regulatory approval services, causing a 17% decrease in segment revenue. As Guardant spent the past year making significant investments in its early cancer detection tests, higher expenses paired with slightly lower pricing cut into margins in 2022.

For 2023, the company has guided toward revenue growth of 17%-20% while bringing operating expenses below 2022 levels and reducing cash burn, which we model in our near-term assumptions. While our positive moat trend rating stems from Guardant’s liquid biopsy offerings for early cancer detection, we remain confident that the precision oncology segment will drive growth from increased clinical volume in the meantime. We note that our fair value estimate is informed by very long-term assumptions.