Goldman on how to play the 'major market opportunity' in coronavirus screening

Published Fri, Oct 2 202010:53 AM EDT

(This story is for CNBC Pro subscribers only.) Goldman Sachs expects coronavirus testing to become a multi-billion dollar investing opportunity over the next year, with one stock in particular poised to benefit. Covid-19 testing "is very likely to become a major market opportunity over the next 12-18 months that exceeds current expectations," Goldman Sachs analyst Amit Hazan told clients. The Wall Street firm said testing volumes could grow towards 50 million to 100 million tests per month by the first half of 2021. These levels could drive peak sales for population screening to around $2.4 billion in the fourth quarter of 2020 and moderate towards $1.6 billion by this time next year, the firm estimates. On the heels of news that President Donald Trump tested positive with Covid-19, investors are reminded of the non-discriminatory nature of the deadly coronavirus. The United States — where more than 7.2 million have been infected and more than 207,000 people have died, according to a tally from Johns Hopkins University — will likely need to use increased testing as a way to reopen the economy, put children back in schools and workers back in the workforce. The US testing market for COVID-19 can generally be broken down into diagnostic testing, conducted to diagnose symptomatic or potentially infected individuals, and population screening of healthy individuals conducted to reduce future transmission, the firm said. With population screening reaching $2.4 billion in sales, Goldman expects the diagnostic market for COVID testing to slow to about $1.1 billion in sales for the current quarter of 2020 and then further slow towards $900 million in sales by the fourth quarter next year. This results in a total COVID testing market —including screening and diagnostic testing — to reach $3.5 billion in the fourth quarter of 2020 and slowing to $2.5 billion in Q4 of 2021. "We anticipate antigen tests are the modality that will garner the lion's share, and we anticipate demand dynamics to be positive for all related players for at least the next six months," said Hazan. Goldman said the testing opportunity should directly benefit medical technology company B ecton Dickinson and Company , which the firm just added to its Conviction Buy List. The company's 15-minute Covid-19 test was cleared for use in Europe on Wednesday. Quicker screening methods for Covid-19 testing are likely to gain popularity and benefit the companies that are able to mass produce them. However, the company's stock is down 15% this year, which could set it up for outperformance if the Goldman view comes true. "Valuation now resides below BD's 10-year average...and we think now fully reﬂecting these high level concerns, offering an improved buying opportunity that we don't often see at a time when we expect key product issues to dissipate, COVID testing upside to be increasingly likely, and broader recovery beneﬁting procedure based sales lines along with the group," said Hazan. Goldman has a buy rating on Becton Dickinson and raised its 12-month price target to $279 per share from $278 per share. Abbott Laboratories also has a rapid Covid-19 test and Hazan said that Abbott' s strong antigen testing sales will continue; however, it is already reflected in the stock. Goldman has a sell rating on Abbott. "Our Sell call continues to be largely related to valuation (peak vs prior years) and the overestimation of earnings given the impact from these temporary revenue streams," said Hazan. — with reporting from CNBC's Michael Bloom.

Medical Assistant Suleika Nunez takes a swab sample from Mass. State Representative Daniel Ryan at the NEW Health COVID-19 testing site at the Bunker Hill Housing Development on August 11, 2020 in Charlestown, Massachusetts.

Matt Stone | MediaNews Group | Getty Images

(This story is for CNBC Pro subscribers only.)

Goldman Sachs expects coronavirus testing to become a multi-billion dollar investing opportunity over the next year, with one stock in particular poised to benefit.