Even Exact Sciences Bulls Wonder If Expectations Are Lofty

EXACT Sciences Corporation EXAS shares have been on a heady run this year. Despite the sell side's optimism on the company's fundamentals, analysts have become wary of Exact's astronomical valuation, with the company holding its highest valuation since the summer of 2015.

The Analyst & Rating

Baird analyst Catherine Ramsey Schulte downgraded shares of Exact Sciences from Outperform to Neutral, with a price target of $56.

The Thesis

Exact Sciences has continued to report impressive quarters and steadily improving utilization, Ramsey Schulte said in a Monday note. Cologuard's positioning in quality measures and insurance coverage is strong, the analyst said. (See Ramsey Schulte's track record here.)

Expectations going into 2018 are high, according to Baird. Using a $450 average selling price, or ASP, estimate for 2018, the Street estimate for Exact sits at 930,000 completed tests versus Baird's estimate of 874,797.

The gap could be magnified further when guiding for the full year, Ramsey Schulte said.

Exact is in the habit of guiding conservatively and then beating its guidance, the analyst said. The company's guidance range for the fourth quarter suggests that it might be attempting to rein in expectations a bit, the Ramsey Schulte said.

"With a $7 billion-plus market cap, it certainly feels like big numbers are expected," she said. 

"We continue to have a very positive outlook on the business, but believe it's worth staying on the sidelines until expectations for 2018 have been set."

The Price Action

At the time of writing, shares of Exact Sciences were shedding 3.45 percent to $58.29.

The stock is up a staggering 336 percent year-to-date. 

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Photo courtesy of Exact Sciences.