Will SoftBank Group Corp.'s (SFTBY, Financial) huge investment in Pacific Biosciences of California Inc.(PACB, Financial) turn out to be another home run for the Japanese conglomerate or will it be a swing and a miss like robotic pizza chain Zume?
Investors seem to be confident the former is more likely, bidding up the stock of Menlo Park, California-based PacBio about 28% to $51.15 after SoftBank revealed it is committing $900 million to the genetic sequencing company.
SoftBank agreed to purchase convertible senior notes due in 2028 at $43.50 apiece, or a 30% premium above PacBio's 30-day closing average. The investment comes on the heels of about a 6% ownership in PacBio that SoftBank had already accumulated and will give the Japanese investor a significant voice in the direction of the company.
"We believe that PacBio's HiFi sequencing will be the de facto standard tool for population genomics fundamentally altering the practice of healthcare," SB Management CEO Akshay Naheta said in a press release.
SoftBank succeeded where Illumina Inc. (ILMN, Financial) failed. About a year ago, Illumina made a $1.2 billion bid for PacBio, but the Federal Trade Commission quashed the deal, noting that the San Diego-based company already produced over 90% of the world's genomic data and absorbing PacBio would give it a monopoly. Illumina did pocket nearly $100 million for being left at the altar.
Investors could have bought PacBio for a measly $4 just about a year ago. The stock started its latest ascent in January after the company inked a multiyear collaboration with Invitae Corp. (NVTA, Financial), a leading medical genetics company.
SoftBank, with a $100 billion investment fund, is well known for making big bets on private technology companies,though lately, it has changed its focus, selling off large companies and buying back stock. It is now concentrating on publicly held companies.
Two of its best plays have been DoorDash Inc. (DASH, Financial) and Alibaba Group Holding Ltd. (HKSE:09988, Financial). On the other side of the ledger are Oyo Corp. (TSE: 9755) and privately held Rappi and Getaround.
PacBio had fourth-quarter 2020 adjusted earnings per share of 37 cents, compared to break-even a year earlier. The Zacks Consensus Estimate was 43 cents per share.
For 2020, earnings per share met the Zacks estimate of 17 cents. A year earlier, the company had a loss of 55 cents per share.
PacBio fell short of Zacks estimate for sales by a small margin, totaling about $27 million for the fourth quarter. For the year, the company's revenue was about $79 million, in line with Zacks estimate but down more than 13% from 2019.
In the latest information available from CNN Money, the five analysts offering price targets for PacBio have a median target of $48, a high estimate of $62 and a low of $12. The shares are rated a buy. Street Insider reported that Cantor Fitzgerald's Kyle Mikson has reiterated an "overweight" rating on PacBio.
"In our view, the SoftBank investment is a large vote of confidence in PacBio's technology and future opportunity," he added.
However, Mikson urged investors to be patient, noting that 2021 will likely be an expansion year for the company as it strives to double its sales force.
Disclosure: The author has no positions in any of the stocks mentioned in this article.
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