Stabilizing core high return capital deployment = accelerating earnings profile.
We are upgrading MYGN to Overweight from Equal-weight as we believeMYGN's earnings profile is dramatically changing. We observe: 1) the core HCTbusiness showing durability above what bears give credit, with volumes returningto growth and price declines slowing as we outlined in our March upgrade toEqual-weight: Balanced Risk/Reward and HCT Share Improving; Upgrading toEW (21 Mar 2018); 2) Key acquisitions expanding the company's TAM intopsychiatry (Assurex) and a natural leverage point for the core OBGYN business inpre-natal (Counsyl), also diversifying into higher growth and improving ASPtesting markets; 3) Conservative estimates make MYGN appear inexpensive withthe highest FCF yield in our space at 7% on '19, despite growing FCF 30% through'21, 1000bps ahead of peers. Our EBIT estimate moves 30% higher in FY20 andabove consensus by a similar degree for the improving stabilization we see incore HCT and the inclusion of Counsyl. We believe the buyside has also not yetincorporated above dynamics into their views of the stock. Key catalysts will beFY19 annual guidance, including Counsyl expected during earnings in August thatwe expect can drive consensus '19 estimates 10% higher. We raise our PT from$35 to $55 based on our DCF, implying a 5% FCF yield and 25x FY20e EPS, belowpeers on FCF trading at 4% despite growing FCF 1000bps faster over the next 3years.
Risks are noteworthy, but our model leaves margin for error. While we note thatthe bears on MYGN are correct that there is limited visibility on the pace ofGenesight reimbursement, Counsyl share trends, or hereditary cancer/HCTpricing trends, we took a conservative view on each of these points in buildingour updated forecasts. 1) Genesight: our ASP trend assumes less than half ofpayors reimburse at target levels as far out as 2022, in spite of supportive clinicaland cost-benefit data; 2) Counsyl: we assume shar……[摩根士丹利]