What happened

After the company reported top-line and bottom-line third-quarter financials that were significantly better than analysts were expecting, shares in genetic screening company Fulgent Genetics (NASDAQ:FLGT) were skyrocketing 11.2% at 11:48 a.m. EDT on Tuesday.

So what

The healthcare company is enjoying robust growth since pivoting its business earlier this year to include coronavirus testing for governments, businesses, and schools. Contracts to provide testing resulted in third-quarter revenue of $101.7 million, up 883% year over year, which was $53 million better than industry watchers predicted. 

A test tube labeled COVID-19.

Image source: Getty Images.

Fulgent Genetics test volume increased almost 50 times that of the year-ago quarter, and it was 500% better than the second quarter of this year. The average revenue per test increased to $98 from $96 quarter over quarter, and the average cost per test declined 42% to $25 in the quarter. The uptick in price, leveraged against lower costs, resulted in GAAP earnings per share of $1.98, which was $1.50 above analyst estimates.

The company's core genetic-screening business also benefited from increasing demand in the quarter, since easing restrictions on patient visits resulted in a 57% sequential increase in core testing, including cancer, neo-natal, and pre-natal screening.

Now what

Fulgent Genetics expects COVID-19 testing tailwinds to continue for a while. It added nearly 80 new clients in Q3, including drive-through testing contracts in Los Angeles, Miami, and Utah. It also began school testing in New York City in October, and it landed a contract with what it calls one of the largest biotech companies in the United States, clearing the way to regularly test thousands of employees over the next 18 months.

Management is targeting fourth-quarter revenue above $110 million and full-year revenue over $235 million because of these new accounts, resulting in adjusted net income of about $4 per share in 2020. For perspective, its revenue was just $8.4 million and adjusted income was only $0.04 in Q4 2019.

That's impressive, but investors should recognize COVID-19 tailwinds could fade once a vaccine is widely available. If so, management will need to take advantage of cross-selling opportunities for its core genetic screening services if it hopes to offset any potential lost coronavirus revenue.

 
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