In the rapidly evolving healthcare sector, investors are continually looking for stocks that not only promise substantial growth potential but also offer groundbreaking medical advancements. Exact Sciences (EXAS) represents a compelling investment opportunity, especially after its latest triumph in the regulatory arena. Despite underperforming year-to-date, the company has secured a significant victory with the U.S. Food and Drug Administration (FDA) approval of its new non-invasive cancer diagnostic test.
The company’s FDA victory has injected renewed optimism into its long-term outlook. In addition to this regulatory win, the company is projected to achieve full-year profitability in 2026, further enhancing its investment appeal. Analysts tracking the stock remain overwhelmingly positive, with a “Strong Buy” consensus and solid upside potential to the mean price target.
In this article, we will explore why Exact Sciences is a stock that investors should seriously consider scooping up. We’ll dive into the details of the FDA approval and examine the company’s financials, valuation, growth outlook, sentiment in the options market, and analyst coverage.
About Exact Sciences Stock
Valued at $12.7 billion, Exact Sciences (EXAS) is a molecular diagnostics company that specializes in developing and marketing non-invasive tests for early cancer detection. The company’s premier product, Cologuard, is a non-invasive DNA test that detects colorectal cancer, which is the second leading cause of cancer-related deaths in the United States.
Despite recent positive developments, shares of Exact Sciences have fallen 7.8% year-to-date, underperforming the broader market.
Exact Sciences Wins FDA Approval For Cologuard Plus Test
On Oct. 4, Exact Sciences stock rose nearly +3% following the announcement that the FDA approved its next-generation multitarget stool DNA test, Cologuard Plus, for detecting colorectal cancer in adults aged 45 and older who are at average risk for the disease.
The approval arrived a decade after the regulatory agency cleared the original Cologuard. It was granted based on results from the pivotal BLUE-C study, where the Cologuard Plus test showed 95% overall cancer sensitivity and 43% sensitivity for advanced precancerous lesions at 94% specificity with no findings on colonoscopy. Sensitivity measures true positivity for a test, while specificity measures its true negativity. The data came from a subset of around 19,000 participants at average risk.
Notably, the test significantly surpassed an independent fecal immunochemical test in overall colorectal cancer sensitivity, treatable-stage colorectal cancer (stages I-III) sensitivity, high-grade dysplasia sensitivity, and advanced precancerous lesion sensitivity.
“Cologuard Plus sets a new performance standard in non-invasive colorectal cancer screening for patients,” said Kevin Conroy, Chairman and CEO of Exact Sciences. “Cologuard Plus detects cancers and precancerous polyps with even greater sensitivity than Cologuard while reducing false positives by more than 30 percent. This breakthrough comes at a critical time when 60 million Americans are not up to date with screening.”
Set to launch next year, the Cologuard Plus test is expected to be covered by Medicare, included in the U.S. Preventive Services Taskforce guidelines, and included within quality measures.
More News for EXAS Stock
On Sept. 16, Exact Sciences climbed about +6% after releasing positive performance data for its blood-based colorectal cancer screening test. Data showed sensitivities of 88.3% for colorectal cancer and 31.2% for advanced precancerous lesions at specificity of 90.1% for negative samples confirmed by colonoscopy. The study utilized 3,000 blood samples, in addition to over 90 advanced precancerous lesions and 60 case-collected colorectal cancer samples.
The study’s results demonstrated the potential of a new, highly discriminate blood-based panel of methylated DNA markers and a significant new class of markers to detect advanced precancerous lesions and cancers at a favorable cost profile.
How Did Exact Sciences Perform in Q2?
On Aug. 1, Exact Sciences soared more than +26% after the company reported better-than-expected Q2 results and raised its full-year adjusted EBITDA guidance.
Exact Sciences’ total revenue for the second quarter was $699 million, marking a 12% increase year-over-year, or 13% on a core basis when excluding COVID testing, foreign exchange impacts, and mergers and acquisitions. Growth was primarily driven by a 15% year-over-year increase in revenue in its screening segment, attributable to Cologuard.
During the Q2 earnings call, the company’s Chief Financial Officer, Aaron Bloomer, stated that Cologuard orders continue to grow consistently as health systems, healthcare professionals, and payers increasingly incorporate the test into their practices.
Additionally, the precision oncology segment, which made up 24% of total revenue in Q2, recorded growth of 7%, or 6% on a core revenue basis. Growth was driven by Oncotype DX, which experienced 31% expansion internationally.
As a result, EXAS’ top line surpassed Wall Street’s estimates by $9.16 million. Its net loss narrowed to $16 million, or $0.09 per share, in the second quarter of 2024, from $81 million in the same quarter a year ago, beating expectations by $0.24.
The company reported a record adjusted EBITDA of $110 million, up 65% year-over-year. Notably, the adjusted EBITDA margin increased by 500 basis points to a record 15.7%, driven by volume growth, productivity, and expense controls, particularly within General and Administrative expenses.
Exact Sciences generated $71 million in free cash flow, marking a $5 million increase year-over-year and a $191 million rise sequentially. It ended the quarter with cash and marketable securities of $947 million. EXAS’ robust balance sheet and positive free cash flow outlook enabled it to fully repay the $50 million outstanding balance of its AR securitization facility and secure an exclusive license with TwinStrand Biosciences.
Looking ahead, the company maintained its revenue guidance and raised its adjusted EBITDA guidance for fiscal 2024. Management expects revenue to range between $2.81 billion and $2.85 billion. Adjusted EBITDA is anticipated between $335 million and $355 million, an increase from the previous forecast of $325 million to $350 million.
Is EXAS Stock Overvalued?
Analysts tracking the company expect its net loss to narrow by 23.01% year-over-year to -$0.87 per share, while projecting a 13.28% year-over-year increase in revenue to $2.83 billion. Notably, the company is expected to achieve full-year profitability in 2026.
In terms of valuation, the stock seems undervalued compared to its five-year average multiples, yet it trades at a premium compared to sector median levels. For example, the stock is currently trading at 4.47 times forward sales, which is above the sector median of 3.62x but well below its own five-year average of 7.52x. Also, the company’s forward EV/Sales ratio is at 5.12x, exceeding the sector median of 3.59x, yet again below its own five-year average of 8.07x.
This still indicates potential for upside if the multiples return to their historical levels - a scenario that appears highly likely, given the company’s solid fundamentals and the significant upcoming catalyst of the Cologuard Plus test launch.
Options Market Sentiment on Exact Sciences Stock
Looking at the option chain for January 17, 2025, the $67.50 call option has a bid/ask spread of $7.90/$8.20, while the $67.50 put option displays a spread of $6.20/$6.50. Keep in mind that this option strike is closest to the current stock price. We can determine the anticipated price fluctuation by utilizing the midpoint prices of these options:
6.35 (67.50 put) + 8.05 (67.50 call) = 14.4/68.52 = 21%
Based on current prices, the options market indicates that EXAS stock could experience a movement of about 21% by January options expiration from the $67.50 strike price, using the long straddle strategy. That would place the stock in a trading range of $54.13 to $82.90.
Notably, put options at the $67.50 strike price outnumber call options by approximately 2 to 1, with 407 open puts compared to 197 open calls. However, at the next strike price of $70.00, there are about eight times as many open calls as open puts, suggesting that the stock may be positioned to break that round number level.
What Do Analysts Expect For EXAS Stock?
On Monday, BTIG analyst Mark Massaro reiterated a “Buy” rating and a price target of $82.00 on Exact Sciences following the approval of the Cologuard Plus test. Analysts expect that the improved test will be well-received by healthcare providers and patients, potentially leading to a significant increase in sales.
Wall Street has a consensus rating of “Strong Buy” on Exact Sciences stock overall. Among the 22 analysts in coverage, 19 rate it as a “Strong Buy” and three assign a “Hold” rating. The mean target price for EXAS stock is $78.55, indicating an upside potential of about 15% from current levels.
