Exact Sciences stock tumbled early Thursday in a move analysts called "overdone" and "overblown" as fears of a sales slowdown spooked investors in the Cologuard maker.
Cologuard is a means of screening for colon cancer using stool collected at home. Exact Sciences says it's an easier and speedier option than colonoscopies, given the backlog in the U.S. health care system. In the first quarter, total sales climbed 6% to $638 million. That easily topped views for $627.3 million.
But Exact Sciences reported stronger 17% to 24% sales growth over the past four quarters, Evercore ISI analyst Vijay Kumar said in a report. Further, the outlook calls for better growth in the back half of 2024. In other words, Cologuard sales will have to accelerate.
"The discussion on the call focused ad nauseam about levers to drive the acceleration," William Blair analyst Andrew Brackmann said in a report. "While it is by no means a 'layup,' we still believe there is a path to achieving these targets."
Still, Exact Sciences stock dropped 9%, closing at 54.15 on today's stock market.
Covid Shakes Things Up
As usual, the lion's share of first-quarter revenue came from Cologuard screenings at $475 million, up 7%. Precision oncology, which includes Exact Sciences' Oncotype DX and therapy selection tests, climbed 5% to $163 million.
Evercore's Kumar says the year-over-year growth rate is deceptive. During the same three months last year, screening sales were elevated after coming out of the Covid slowdown. But, when compared with pre-pandemic levels, first-quarter screening sales accelerated vs. second-quarter of 2023 levels, he said.
"We do think this (compound annual growth rate) smoothens out the year-over-year comparisons and is a more accurate representation of underlying trends," he said in a report.
Kumar kept his outperform rating on Exact Sciences stock, but cut his price target by 10 to 80.
Also bearishly, Exact Sciences reported a wider-than-expected loss at 60 cents per share. That grew from a year-earlier loss of 42 cents and missed projections for a loss of 47 cents per share, according to FactSet.
Is Annual Guidance Achievable?
Exact Sciences kept its 2024 guidance, and expects $2.81 billion to $2.85 billion in sales. Analysts call for $2.83 billion, in line with the forecast. The outlook includes $2.16 billion to $2.18 billion from screening sales, and $655 million to $675 million from the precision oncology business.
Canaccord Genuity analyst Kyle Mikson expects Exact Sciences to achieve its 2024 goals — despite light second-quarter guidance — and maintained his buy rating on Exact Sciences stock. He trimmed his price target to 85 from 90, however.
"The shares traded about 20% lower in the after-hours on May 8, presumably due to doubt in the organic potential of Cologuard," he said in a note. "We think concerns are overblown as commercial investments are a common source of test volume growth. The shares appear attractive as they offer over 40% upside potential to our revised price target."
William Blair's Brackmann says Exact Sciences' sales will have to accelerate meaningfully after the second quarter to meet the full-year outlook. The second-quarter guidance implies sales will grow 11%, at the midpoint, in the first half of the year. This means sales will have to surge 20% in the back half.
"We see a path forward with several levels to pull," he said.
Good Visibility Into The Second Quarter
It's important to note, Exact Sciences already has good visibility into the second quarter due to Cologuard ordering trends and logistics.
Also, the outlook calls for a mid-single-digit percentage increase in second-quarter sales, sequentially. The third and fourth quarters are expected to have high single-digit sequential sales increases.
These sequential increases "do not seem herculean," he said.
"To put it simply, more reps = more sales calls = more test volume = more revenue," he said. "This is a tried and true recipe for Exact Sciences since the launch of Cologuard nearly a decade ago and we have no reason to doubt its impact is misinformed."
Still, Exact Sciences stock has been under pressure recently, falling nearly 27% this year as of Thursday's close. The stock is a holding of Wood's ARK Innovation exchange traded fund.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
