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Here's Why Myriad Genetics Dropped as Much as 10.8% Today

By Maxx Chatsko – Nov 7, 2018 at 1:19PM

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The genetic testing had to revise its full-year fiscal 2019 revenue guidance -- just one quarter into the fiscal year.

What happened

Shares of Myriad Genetics (MYGN -2.35%) fell over 10% today after the company reported fiscal first-quarter 2019 operating results. The business crushed Wall Street estimates for adjusted earnings per share and exactly matched quarterly revenue expectations, but caused a stir by reducing its fiscal full-year 2019 revenue guidance just three months into the new operating year.

In what president and CEO Mark Capone characterized as "transitory" issues, Myriad Genetics identified two issues that will impact revenue growth for its new reproductive products and the all-important GeneSight platform. Management maintained its expectations for adjusted EPS in the range of $1.70 to $1.75, but lowered revenue expectations to a new midpoint of $860 million. That's only 3% lower than the previous midpoint of $885 million, but given the recent struggles the company has encountered stemming revenue declines from its legacy hereditary cancer portfolio, investors are wary of any signs of headwinds. 

As of 12:49 p.m. EST, the stock had settled to a 10.3% loss.

An investor pounding his fist on his desk in anger as a tablet displays a stock chart with steep losses.

Image source: Getty Images.

So what

As investors will remember, in May 2018 -- toward the end of the company's fiscal 2018 -- the genetic testing pioneer pulled the trigger on the $375 million acquisition of Counsyl, a leading provider of genetic testing and analysis services for reproductive health applications. The fast-growing market is expected to swell into a $1.5 billion market opportunity by 2023. Analysts thought it was just the shot in the arm the business needed to accelerate lagging growth and profitability, and a strong end-of-year showing seemed to back that up.

New, lower expectations for revenue cast a little more doubt on that. While the revised revenue guidance means the business is still on track to deliver year-over-year revenue growth of 20% for fiscal 2019, investors aren't taking the miscalculation lightly given the business' recent history. That's not entirely without warrant, either, especially considering Myriad Genetics reported an operating profit of just $1.2 million on $202.3 million in revenue for the opening quarter of its new fiscal year. 

Now what

Myriad Genetics is pouring money into growth initiatives and new product portfolios in hopes of spurring revenue growth and creating a path to delivering consistent, healthy profits in the future. That could still materialize -- and successfully integrating Counsyl would help to reduce redundant operating expenses in the coming quarter and boost profitability -- but investors are starting to realize there's more uncertainty in the argument that revenue growth will lead to operating income growth, too. 

It doesn't help that peer Genomic Health blew the doors off in the third quarter of 2018 and zoomed past Myriad Genetics in both profitability and market cap. It's just the latest reminder that the genetic testing pioneer faces formidable competition that isn't going away anytime soon.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. The Motley Fool has a disclosure policy.

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