Canaccord Remains Bullish on EXACT Sciences Corporation (EXAS) Despite Disappointing Outlook

EXACT Sciences Corporation (NASDAQ:EXAS) shares fell almost 15% yesterday after the molecular diagnostics company posted third-quarter earnings yesterday. Yet, Canaccord analyst Mark Massaro begs to differ with those responding negatively to the report. For the analyst, this was a “solid quarter” with a top-line 11% beat and he therefore reiterates a Buy rating on shares of EXAS with $24 price target, which represents a 43% increase from current levels.

For the third quarter, EXAS brought in revenue of $28.1 million, which is a stellar surge forward, especially when considering operating expenses decreased from last quarter’s $56.2 million to $54.2 million. The company added 9,000 docs this quarter, which is well over the analyst’s expectation for 5,000. In the future, the analyst anticipates doc adds to “hover” in the 8,000 range per quarter. Massaro also commends a 33% growth in sequential volumes, which tops guidance bus falls “in-line with the ‘whisper number.'” Revenues per tests also rose over 5% sequentially to $412 per test, “all above our expectations,” the analyst adds.

However, management did cut full year sales guidance by $1 million at the midpoint to a range of $93 to $95 million, which is most likely what has sent investors running for the hills. To Massaro, this “was more an act of conservatism on management’s part than a fundamental guide down, in our opinion.”

Thanks to “a strong early start to Q4,” the company demonstrates confidence in maintaining its outlook for 2016 of 240,000 tests completed, which the analyst believes “properly calibrates any holiday impacts that impacted its business last December.” For fourth quarter, the analyst estimates 78,000 tests and revenue of $30 million.

“We believe today’s reaction to the stock is overblown and we’re surprised to see the stock trading in the $16-range, which we think marks an attractive new entry point for investors. EXAS delivered a solid quarter and beat on nearly every metric we track with the exception of its patient compliance rate, which missed by 1 point and a factor we believe will be worked out with time. To reflect conservatism in our model, we lower our numbers to bake in lower patient compliance, among other factors. Net-net, Exact Sciences, the company, is executing at a high level and we think the stock reverts back to the $20-range in the not-too-distant future,” Massaro concludes.

Next up, on November 17th, the analyst will be hosting EXAS at the 10th Annual Canaccord Genuity Medical Technology and Diagnostics Forum in New York City.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Mark Massaro is ranked #3,789 out of 4,188 analysts. Massaro has a 44% success rate and faces a loss of 4.1% in his annual returns. However, when recommending EXAS, Massaro earns 3.4% in average profits on the stock.

TipRanks analytics indicate EXAS as a Buy. Based on 6 analysts polled in the last 3 months, 4 rate a Buy on EXAS, while 2 maintain a Hold. The 12-month price target stands at $21.20, marking a nearly 27% upside from where the shares last closed.

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