We've said it before. When a great company says operating conditions are ramping up FASTER than anyone on Wall Street publicly anticipates, there's no excuse for the stock to go DOWN. Sooner or later, it will come back up.
We see an opportunity to add to Exact Sciences (EXAS: $90, down 14% yesterday) on the dip. All this sudden lurch does is rewind the rally of the last few weeks, leaving the stock back where it started the year and 28% above where we started coverage 17 months ago.
After all, the dip was allegedly motivated by the company announcing its 4Q19 revenue five weeks early. Yes, the company is on track to book about $295 million in sales for the quarter, with more than 75% of that coming from colon cancer screening kits. That piece of the company is growing a healthy 60% a year.
Moreover, that growth confirms that Exact Sciences sold $810 million in kits last year. Three months ago, management told us to expect $806 million. Once again, demand for mail-in colon cancer screening is ramping up faster than corporate insiders anticipated. Even we're surprised.
Then there's the company's newly acquired Cancer Diagnostic business, which is only growing at a 13% rate but still contributed $20 million more to the top line this quarter than we projected. Add it all up, Exact Sciences boosted its revenue 92% last year, 4 percentage points above our target. That's a juggernaut. On a pure organic basis (just the mail-in kits, not counting acquisitions in the mix), we're looking at 78% growth here.
We weren't alone here. Our revenue projections weren't materially more aggressive or more cautious than what other analysts told their clients to expect. Exact Sciences gave us all of that and more. Some people can bicker over kit processing volume or other internal metrics, but it's hard to really build a case that more money coming in requires the stock to go down.
Other market watchers are jumping on this moment. Boston brokerage firm BTIG started coverage of Exact Sciences at a "buy" with an initial $127 target. They see this company growing 700% in the next decade. Does that look like a sell signal to you?
We love this company and are temporarily suspending our $93 Sell Price. And we're convinced it's going to hit our $145 Target in the foreseeable future. That's only 17% above the summer peak . . . but those who use this moment as an entry point can rack up a staggering gain along the way.