Summary
- Today, we zero in on Exact Sciences Corporation, best known for its "best of breed" non-invasive stool-based DNA screening test called Cologuard.
- Exact Sciences stock has soared 35% so far in 2023 thanks largely to an upward revision to fourth quarter guidance.
- Can the rally continue or is it time to take profits? An investment analysis follows in the paragraphs below.
Look and see which way the wind blows before you commit yourself .”? Aesop, Aesop's Fables.
Today, we take a look at Exact Sciences Corporation ( EXAS ), a cancer screening and diagnostic firm whose stock is up by more than a third so far in 2023. However, the shares look a little " tired" in recent trading sessions. Can the rally continue or is some profit-taking likely on the horizon. An analysis follows below.
Company Overview:
Exact Sciences Corporation is based out of Madison, WI. This diagnostic firm is best known for its " best of breed" product called Cologuard. This is a non-invasive stool-based DNA screening test to detect DNA and hemoglobin biomarkers associated with colorectal cancer and pre-cancer. The stock trades right at sixty five bucks a share and sports an approximate $11.6 billion market capitalization.
November Company Presentation
Exact Science also offers other tests (Ex, Oncotype DX, Oncotype DX AR-V7 Nucleus Detect Test, Oncotype Test) to detect various forms of cancer within its Screening and Precision Oncology divisions as well as Covid-19 testing services. The current focus on its pipeline developing centers around enhancing Cologuard test's performance characteristics and developing blood and other fluid-based tests.
Third Quarter Results
On November 3rd, the company posted its third quarter results . The company had a GAAP loss of 84 cents a share during the quarter as revenues rose 14.6% on a year-over-year basis to just over $523 million. Both top and bottom line numbers were nicely above the analyst firm consensus at the time. Excluding Covid-19 testing, sales were up 20% from the same period a year ago.
November Company Presentation
Management also provided positive forward guidance in several key metrics. Leadership saw full year 2022 sales $33 million above previous guidance and stated operating expense would come in $113 million lower than previous guidance midpoints. Finally, the company expects to be positive from an adjusted EBITDA perspective by the third quarter of FY2023, ahead of previous guidance calling for that to happen sometime in FY2024. Exact Sciences had a negative adjusted EBITDA of $13 million during the quarter. Unadjusted EBITDA for the quarter was a negative $98.1 million.
November Company Presentation
Fourth Quarter Guidance
On January 9th, the company disclosed it was now upping Q4 and FY2022 guidance again. Fourth quarter revenue is now estimated to be between $550.7 million and $552.7 million. The consensus at the time was just over $512 million. COVID-19 testing revenue is now estimated at just under $6 million for the quarter, which would be down 87% from Q42021.
However, screening revenue is expected to be up 45% on a year-over-basis to just over $400 million while Precision Oncology sales are projected to fall four percent from the same period a year ago to just north of $140 million. Full-year revenue was revised higher by approximately $50 million. The decline in Covid-19 testing will be easily offset by a 34% rise in screening revenues (roughly $1.42 billion) and a seven percent gain in precision oncology (just over $600 million)
Analyst Commentary & Balance Sheet:
The analyst community has grown mixed on the prospects for the Exact Sciences after its post Q4 earnings guidance rally. Since fourth quarter guidance was posted, Craig-Hallum has maintained its Hold rating on the stock but boosted its price target to $44 from $35 previously. Both Raymond James and Credit Suisse ($70 price target) downgraded the shares to Hold/Neutral. Meanwhile, SVB Securities ($75 price target), Robert W. Baird ($89 price target, up from $60 previously) and Bank of America ($80 price target, up from $62 previously) have maintained Buy/Outperform ratings on the equity.
Insider activity has been rather light in recent months. One insider sold nearly $530,000 worth of stock in mid-October and two insiders have disposed of approximately $138,000 worth of shares in aggregate so far in 2023. Nearly seven percent of the outstanding float in the shares is currently held short. The company ended the third quarter with nearly $670 million in cash and marketable securities on its balance sheet against long term debt of just over $2.2 billion.
Verdict:
The current analyst firm consensus has Exact Sciences losing just over $3.50 a share in FY2022 on 16% year-over-year revenue growth with sales just over $2.05 billion for the fiscal year. They project sales growth will ebb to the low teens in FY2023 while losses will drop to approximately $2.40 a share.
Exact Sciences has a solid flagship product and the recent guidance boost was encouraging. However, Exact Sciences Corporation is still unprofitable and will likely continue to be so over at least the near-term horizon. Exact Sciences also has a good spot of debt on its balance sheet. With the shares trading at roughly seven times Enterprise Value/Sales, the equity seems more than fully priced.
Therefore, Exact Sciences Corporation shares are an avoid at current trading levels. The stock looks like it might be topping out here around $65 as well. If there was more liquidity in the options on this equity, I would probably short EXAS via a Bear put spread . Unfortunately, there isn't at this time, so I have investment recommendation around the shares. Fourth quarter results should be out shortly, but there is unlikely to be many surprises given Exact Sciences Corporation management has already provided updated guidance for the quarter after the fiscal year closed.
Mixing old wine with new wine is stupidity, but mixing old wisdom with new wisdom is maturity .”? Amit Kalantri.
For further details see:
Exact Sciences Corporation: Fully Priced After Big Rally