Veracyte VCYT has consistently gained from the strength of its Afirma and Decipher tests. With Decipher expanding into metastatic and localized disease areas, the growth is likely to continue in the coming years. Simultaneously, the company continues to progress in its strategic long-term growth drivers. Meanwhile, declining biopharmaceutical revenues and macroeconomic impacts raise concerns for its operations. 

In the past year, this Zacks Rank #2 (Buy) stock has demonstrated impressive performance, outperforming the industry’s 10.5% fall and the S&P 500 composite’s 8.1% gain.

The renowned diagnostics company has a market capitalization of $2.48 billion. The company’s earnings yield of 3.9% is well ahead of the industry’s -3.2% yield. VCYT topped earnings estimates in each of the trailing four quarters, the average earnings surprise being 520.6%.

Upsides for VCYT Stock

Afirma Continues to Outperform: Veracyte’s comprehensive Afirma solution efficiently addresses the complex landscape in thyroid nodule diagnosis. In the fourth quarter, the company delivered more than 16,300 Afirma tests, marking an 8% year-over-year rise, despite a challenging prior-year comparison. Revenues grew 4%, driven by deeper penetration in existing accounts and new customer acquisitions, highlighting Afirma’s clinical value and service excellence.

A key milestone was the expanded Local Coverage Determination in July 2024, adding Medicare reimbursement for Bethesda V thyroid nodules. This drove an 80% year-over-year revenue surge for Bethesda V and VI cases, with further ASP tailwinds expected in 2025. Additionally, research-use-only GRID data is gaining traction in academic circles, bolstering evidence generation. With Afirma continuing to gain share, Veracyte anticipates high-single-digit revenue growth in 2025 with this test.

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Strength of the Decipher Franchise: One of the principal sources of revenues for the company, Decipher Prostate Cancer tests saw growth in 2024. The fourth quarter set a record with 22,400 tests, up 45% year over year. Its biopsy-based testing sales were strong, with low-risk cases representing 20% of total volumes. The test remains the only NCCN-recommended gene expression test for prostate cancer treatment decisions.

The recent approval for metastatic assessment and New York State clearance further expands its reach, with commercialization efforts set for early 2025. As Decipher advances into the metastatic space and localized disease opportunities, Veracyte expects sustained growth in the years ahead. Furthermore, the Decipher Bladder test became the first genomic test to be covered by Medicare for patients with bladder cancer and is expected to play a crucial role in the portfolio in the months to come.

Progress With Long-Term Growth Drivers: Veracyte’s successful approach involves identifying medical needs, developing tests and securing clinical evidence, reimbursement and guideline inclusion to drive market penetration. The strategy enables them to invest in long-term growth drivers, such as making strong progress in its NIGHTINGALE study for nasal swab diagnostics, with more than 85% of its target 2,400 patients enrolled. A significant focus is on MRD and recurrence testing, leveraging whole-genome sequencing for deeper clinical insights and broader payor coverage. The first MRD indication, targeting muscle-invasive bladder cancer, will capitalize on Veracyte’s Decipher network with a planned launch in the first half of 2026. International expansion is another strategic pillar, with efforts to launch tests as IVDs.

Concerns for Veracyte

Macro Issues Hurt Growth: Veracyte’s operations are susceptible to macroeconomic challenges, such as interest rate increases and inflation in the United States and global markets, as well as turmoil in the global banking and finance system, among others. Further, ongoing geopolitical uncertainties and supply disruptions can potentially disrupt the company’s profit margin. In the fourth quarter of 2024, the combined costs of product, testing and biopharmaceutical and other revenues increased 19.4% year over year, while general and administrative expenses rose 13.1%.

Biopharma Headwinds Remain: Veracyte is experiencing significant declines in biopharma and other services revenues as a result of reductions in customer projects, extended sales cycles and overall spending constraints across the industry. While it continued to offer these services to pharmaceutical partners, the success of the Biopharma business depends on the company’s ability to find and negotiate with suitable pharma partners. In the fourth quarter of 2024, the company reported a 17% decline in Biopharmaceutical and other revenues.

VCYT Stock Estimate Trend

In the past 60 days, the Zacks Consensus Estimate for Veracyte’s 2025 earnings per share has increased 34.8% to $1.24.

The Zacks Consensus Estimate for the company’s 2025 revenues is pegged at $488.7 million. This suggests a 9.6% rise from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Hims & Hers Health HIMS.

Masimo has an earnings yield of 3.4%, well ahead of the industry’s -3.2% yield. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 14.4%. Its shares have risen 11.6% against the industry’s 10.5% fall in the past year.

MASI sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific, carrying a Zacks Rank #2, has an earnings yield of 3.1% compared with the industry’s 0.4%. Shares of the company have rallied 41% compared with the industry’s 6.4% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.

Hims & Hers Health, carrying a Zacks Rank #2 at present, has an earnings yield of 2.5% compared with the industry’s -6.8%. Shares of the company have rallied 118.7% compared with the industry’s 1.7% growth. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 40.4%.

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This article originally published on Zacks Investment Research (zacks.com).

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