Tempus AI Stock Before Q4 Earnings: To Buy or Not to Buy?

Tempus AI, Inc. TEM is likely to report fourth-quarter fiscal 2024 results shortly.See the Zacks Earnings Calendar to stay ahead of market-making news.For the fourth quarter and full-year 2024, Tempus AI announced its preliminary revenue numbers on Jan. 13. Per the announcement, fourth-quarter preliminary revenues were around $200 million, up 35% year over year. For the full year, the company reported preliminary revenues of approximately $693 million, up 30% from the year-ago period.The Zacks Consensus Estimate for revenues is currently pegged at $206.3 million for the fourth quarter and $698.5 million for the full year.Adjusted EBITDA, per the preliminary result, improved sequentially in the fourth quarter of 2024 and rose from the 2023 level in the full year.The Zacks Consensus Estimate for the fourth-quarter bottom line has been steady at a loss of 14 cents per share over the past 60 days.The same for Tempus AI’s full-year bottom line is pegged at a loss of $1.51 per share, an improvement of 3 cents over the past 60 days.TEM's Earnings Estimate Revision TrendImage Source: Zacks Investment ResearchTempus AI began trading publicly on June 14, 2024. Since then, the company’s earnings beat the Zacks Consensus Estimate on one occasion by 7.41% and missed on the other by 6.78%.Let’s see how things have shaped up for TEM shares prior to this announcement:Factors to Note Prior to Tempus's Q4 EarningsThis innovator in artificial intelligence-based precision medicine solutions has been attracting investors' interest since its successful IPO in June. As the market’s appetite for AI applications in healthcare is rapidly increasing, Tempus AI is emerging as a top contender in this high-growth sector. We expect the company’s cutting-edge product lines and strategic plans to prove significant in driving the company’s fourth-quarter results.Balanced Segmental Numbers to Drive Growth: TEM’s Genomics unit is expected to report strong growth in the fourth quarter, banking on continued unit growth pick-up. As per the preliminary report, Genomics’ revenues are expected to grow around 30% in the fourth quarter.Data and Services revenues, which accelerated 64.4% year over year in the last reported quarter, are once again expected to have seen strong growth, primarily banking on accelerated revenue growth within Insights, the company’s data licensing business. Per the preliminary report, Data and Services revenues are expected to grow at around 45% year over year.Earlier, the company expected full-year 2024 revenues of approximately $700 million, implying approximately 32% growth over 2023. During the preliminary announcement, Tempus AI noted that it expects to deliver around 99% of its revenue guidance for 2024 based on strong segmental results.EBITDA Uptrend to Continue in Q4: Tempus AI delivered adjusted EBITDA of -$21.8 million in the third quarter of 2024, which marked a $14.4 million year-over-year improvement and also a significant improvement on a sequential basis. As per the preliminary report, the company is expected to deliver approximately 100% of its adjusted EBITDA guidance of -$105 million in 2024, an improvement of approximately $50 million over 2023.According to the company, the entire business is growing at a rate of more than 25%, which is meaningful in generating significant EBITDA going forward.Cash Flow Trend: Tempus AI’s business is synergistic across all its products, from Genomic sequencing to Data business and AI Applications business. This accelerates the company’s path to positive cash flow. The company’s cumulative operating cash outflow was $149.7 million at the end of the third quarter of 2024, an improvement from $174 million of outflow a year ago. We expect to see a continued uptrend in operating cash flow in the fourth-quarter results.Favorable Price ComparisonIn the past six months, TEM stock has rallied 17.1%, compared with the 17.2% rise of the Medical Info Systems industry and the benchmark’s 12.5% increase. In the meantime, the Medical sector has declined 7.8%.  The company has also outperformed other players in the health infotech field, like 10x Genomics TXG and SOPHiA GENETICS SOPH, which declined 27.1% and 8.7%, respectively, during the said period.Six-Month Price ComparisonImage Source: Zacks Investment ResearchBright Long-term ProspectsTempus is a technology company advancing precision medicine through the practical application of artificial intelligence, including generative AI, in healthcare to create Intelligent Diagnostics. The company's focus on creating Intelligent Diagnostics allows physicians to deliver personalized, data-driven care while enabling researchers to accelerate the research and development of novel therapeutics. As the demand for AI-powered healthcare solutions grows, Tempus will be well-positioned to drive transformative advancements in patient outcomes and secure its role as a prominent player in the future of precision medicine.In January, progressing in this line, the company launched olivia — an AI-enabled personal health concierge app. This is designed to address two core objectives — centralizing patients’ health data and making that data accessible and actionable through AI. Patients can connect directly to over 1,000 health systems through electronic health record (EHR) integration by syncing data from health devices to track daily metrics or manually upload health records.Among other major developments, Tempus AI launched the FDA-approved, NGS-based in vitro diagnostic device xT CDx in the same month. This is a 648-gene next-generation sequencing test for solid tumor profiling, which includes microsatellite instability status and companion diagnostic claims for colorectal cancer patients.Both developments are consistent with the company’s efforts to improve patient outcomes.Further, in a recent breakthrough, the Centers for Medicare and Medicaid Services (CMS) announced that it would allow reimbursement for the assessment of cardiac dysfunction using the Tempus ECG-AF algorithm. ECG-AF is one of just a few FDA-authorized medical technologies in the country to be impacted by the new CMS decision. This allows Tempus to more broadly support clinicians in identifying patients at increased risk of atrial fibrillation/flutter.Meanwhile, the company is also expanding through compelling acquisitions. Tempus AI is optimistic about its plans to acquire Ambry Genetics, a genetic testing player. Ambry is a leader in hereditary cancer screening and currently serves as Tempus’ main reference lab in this category. The acquisition is likely to provide Tempus with expanded testing capabilities for inherited cancer risk. In addition to expanding and enhancing the company’s hereditary screening portfolio, the acquisition of Ambry will complement Tempus’ strategy of using data to advance clinical and scientific innovation. Ambry’s extensive product offerings will also allow Tempus to expand into new disease categories, including pediatrics, rare diseases, immunology, women’s reproductive health and cardiology.Expensive ValuationTEM’s stock is currently overvalued compared to its industry, as shown in the chart below.TEM is currently trading at a forward 12-month price-to-sales (P/S) ratio of 8.81, a premium to the broader industry's average of 5.85X.The stock is also above its one-year median of 8.64X, implying it is strongly overvalued and might not be considered a good opportunity to buy at present. It also trades higher than other industry players like TXG (2.81X) and SOPH (3.6X).Image Source: Zacks Investment ResearchOur TakeWith the AI market projected to grow exponentially in the coming years, Tempus AI is well-poised to capitalize on expanding opportunities. With a strong financial outlook and efforts to improve healthcare outcomes, TEM presents a unique opportunity for investors seeking high returns from the AI and healthcare sectors.Yet, despite the company’s several long-term upsides, the expensive valuation is limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report 10x Genomics (TXG): Free Stock Analysis Report SOPHiA GENETICS SA (SOPH): Free Stock Analysis Report Tempus AI, Inc. (TEM): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks