Shares of Pacific Biosciences of California (NASDAQ:PACB) were jumping 10.6% as of 3:15 p.m. EDT on Friday. The big gain came after J.P. Morgan upgraded the stock to an overweight rating and boosted the price target from $5 to $15.
Analysts' upgrades don't always mean that a company's business prospects have really improved. But it's good to understand the rationale behind them.
J.P. Morgan analyst Tycho Peterson's renewed optimism about PacBio stemmed from his discussion with the company's CEO, Christian Henry. Peterson wrote to investors that PacBio has a new business strategy that left his team "encouraged about the abundant opportunities that lie ahead."
In particular, PacBio plans to expand its sales force to target U.S. and international markets. The company hopes to forge more partnerships along the lines of its deal with Berry Genomics. It also expects to develop new products that reduce gene sequencing costs to be competitive with short-read sequencing solutions.
It's a lot easier to develop a new strategy than to execute it. PacBio has a lot of work to do. The company reported a 30% year-over-year revenue decline in the second quarter. But if PacBio's new CEO can deliver on his promises, the healthcare stock should have plenty of room to run in the future.