Over the last decade, Ark Investment Management, under the leadership of founder Cathie Wood, has become known for strategic investments in pioneering technologies, ranging from genomics and robotics to artificial intelligence and autonomous driving. Despite a challenging 2022, Ark’s ARK Innovation ETF has made a robust comeback, yielding returns of 55% this year, outperforming the S&P 500 by more than two and a half times. Notably, companies like Coinbase Global, Roku, and UiPath have played key roles in driving these impressive results.
Amid various high-profile investment calls, Cathie Wood highlights biotech firm Exact Sciences (NASDAQ: EXAS) as having significant upside potential. Wood projects the stock to reach $139 by 2027, signifying a 115% upside compared to the recent closing price. In the bullish scenario, she anticipates the stock surging to $208, translating to a remarkable gain of 222%.
While the stock has already seen a 31% increase this year, investors are left wondering about the likelihood of a triple-digit surge and how they should approach Exact Sciences going forward. Let’s delve into the evidence supporting this growth outlook.
The Case for Exact Sciences:
Cancer, being the leading cause of death for individuals under 85, has a profound impact. Advances in medicine, particularly in early detection and various treatments, have significantly improved survival rates. Exact Sciences contributes to this progress by offering innovative solutions to detect cancer early and provide intelligent insights at every stage.
The company’s Cologuard screening test, considered the industry standard for colon cancer, has conducted over 13 million tests. Recent updates from insurers and Medicare, offering a no-cost follow-up colonoscopy for patients testing positive with Cologuard, could act as a catalyst, encouraging more patients to opt for this cost-effective test before more complex procedures.
Furthermore, Exact Sciences’ Cologuard 2.0, showcased in clinical trials, demonstrates superior accuracy compared to its predecessor, with enhanced sensitivity in cancer detection and fewer false negatives. The company has also developed a multi-cancer early detection (MCED) screening test, capable of detecting multiple types of cancer through a single minimally invasive blood test.
A standout development is the Oncotype DX tests, offering genetic insights into patients and their tumor biology, aiding physicians in determining the most effective treatments for individual cases.
After facing macroeconomic challenges, Exact Sciences is showing signs of recovery. In the third quarter, revenue surged by 20% YoY, with strong operating and free cash flow, leading to an optimistic full-year guidance update.
Ark’s Thesis Assumptions:
Ark’s valuation model for Exact Sciences, released in January 2023, outlines three potential outcomes by 2027. The base case projects a stock value of $139, indicating a 115% gain. The bullish scenario suggests a surge to $208, translating to a remarkable 222% increase. The bear case indicates a price of $74, implying a modest 15% upside.
The success of Cologuard, especially with the evolving demand for Oncotype DX, remains a crucial variable in Ark’s thesis.
With Exact Sciences guiding for approximately $2.48 billion in revenue this year, achieving Ark’s bear case would require a 14% annual growth by 2027, a feasible target given the current growth pace. The base case demands a 21% annual growth, while the bull case calls for a 26% growth, with the base case appearing achievable and the bull case within reach but challenging.
Can Exact Sciences Achieve a 222% Surge?
Given the economic challenges of the past few years, Exact Sciences faces hurdles to attain Ark’s bull case. The company’s precision oncology revenue, especially from Oncotype DX, holds the key. Exact Sciences forecasts revenue of about $625 million from this segment, a figure that, according to Ark’s calculations, would need to surpass $1.1 billion by 2027.
While meeting Ark’s bull case might extend beyond 2027, Exact Sciences, despite its current price of 4 times next year’s sales, has demonstrated impressive performance, soaring 449% over the past decade. With numerous growth catalysts, a reasonable stock price, and an endorsement from Ark Investment Management, Exact Sciences appears poised for substantial growth, making it an opportune time for investors to consider entry.
