Cologuard Plus And Oncodetect Will Improve Cancer Screening Outcomes

Key Takeaways

• Cologuard Plus and rescreening efforts are key drivers of revenue growth, bolstered by payer coverage and an increasing pool of eligible individuals.
  
• ExactNexus technology enhances efficiency and customer experience, strengthening Exact Sciences' position in precision oncology and improving future earnings.
  
• Challenges from impairment charges, pricing revisions, competitive pressures, and legislative changes create uncertainty for Exact Sciences' revenue growth and profitability.

Catalysts

Provides cancer screening and diagnostic test products in the United States and internationally.

• The launch of Cologuard Plus, a next-generation colon cancer screening test with improved sensitivity and specificity, is expected to drive revenue growth, primarily benefiting the second half of the year as it gradually achieves payer coverage.
  
• Rescreening efforts bolstered by the expanding pool of people eligible for subsequent Cologuard tests are projected to contribute significantly to revenue, with the rate of rescreening reaching an all-time high.
  
• The implementation of care gap programs, which help identify unscreened individuals, continues to expand rapidly, improving screening volumes and consequently driving revenue growth.
  
• The introduction of Oncodetect, focusing on molecular residual disease (MRD) testing, aims to solidify Exact Sciences' leadership in precision oncology while enhancing future earnings by addressing a large, unmet clinical need.
  
• The strategic use of the ExactNexus technology platform enhances operational efficiency and customer experience, likely improving net margins over time through operational leverage and cost efficiencies across the company's infrastructure.

Exact Sciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exact Sciences's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -37.3% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $249.5 million (and earnings per share of $1.35) by about May 2028, up from $-1.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $630 million in earnings, and the most bearish expecting $-12.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.0x on those 2028 earnings, up from -8.1x today. This future PE is greater than the current PE for the US Biotechs industry at 20.4x.
• Analysts expect the number of shares outstanding to grow by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Exact Sciences Future Earnings Per Share Growth

Risks

• The $830 million noncash impairment charge related to the Thrive acquisition due to changes in expected reimbursement reflects challenges and uncertainty in expected revenues and profitability from this acquisition.
  
• Medicare pricing revision delays and the phased adoption of Cologuard Plus, while beneficial, suggest potential risks in realizing anticipated revenue growth, impacting short-term projections.
  
• Seasonal trends in Screening, particularly lower primary care utilization in the first quarter, could lead to revenue variability and uncertainty in meeting financial targets.
  
• The competitive landscape in Precision Oncology and challenges in securing widespread payer adoption could hinder growth in revenue from new tests like Oncodetect and Cancerguard.
  
• The risk from legislative changes, such as those related to USPSTF recommendations and their impact on reimbursement coverage, could affect long-term Screening revenue assumptions by introducing cost-sharing for patients.

Valuation

• The analysts have a consensus price target of $66.854 for Exact Sciences based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $85.0, and the most bearish reporting a price target of just $52.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $249.5 million, and it would be trading on a PE ratio of 62.0x, assuming you use a discount rate of 7.0%.
• Given the current share price of $44.79, the analyst price target of $66.85 is 33.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.