For Immediate Release
Chicago, IL – January 24, 2019 – Zacks Equity Research Exact Sciences EXAS as the Bull of the Day, GameStop GME as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Intel Corp. INTC, Intuitive Surgical ISRG and Skyworks Solutions SWKS.
Here is a synopsis of all five stocks:
Bull of the Day:
Exact Sciences, maker of the revolutionary Cologuard cancer detection test kit, recently gave investors a preview of its Q4 earnings report scheduled for release in mid-February.
On January 12, Exact's preliminary look at the quarter showed expected total revenue of $294-296 million, including Screening revenue (i.e., Cologuard) of $229-230 million, an increase of 61% from 2018, and Precision Oncology revenue -- from the recently closed acquisition of Genomic Health -- of $65-66M for the period Nov. 8, 2019 through Dec. 31, 2019.
The combined company did not offer full-year 2020 guidance, but investors can expect that outlook at the upcoming conference call. Unexpected was the 14% drop in shares the next day which seemed to be focused on sequential Cologuard test volume growth of under 5%.
For the quarter, Cologuard crossed 477,000 tests for 63% year-over-year growth. But that was an increase of just 4.6% from Q3.
I saw the drop in EXAS shares as a good opportunity in a premier oncology diagnostics company. And we began buying for my Healthcare Innovators portfolio after the company's presentation on January 15 at the JPM Healthcare Conference.
Expansion Into Multiple Cancer Threats
In the presentation by CEO Kevin Conroy at the JPM event, investors actually got another negative surprise: the company projected revenues for 2020 to be $1.6 billion, which implies only 26% growth from 2019 total revenue of 1.266 billion.
And shares sold off to $86 over the next two days, giving us even better buying opportunities as lots of investors were missing the bigger and better news.
The good news in the presentation from CEO Kevin Conroy at the JPM Healthcare Conference was very bullish in terms of their expansion into other leading cancer diagnostics. The next big test area will be for liver cancer for which they are partnered with Mayo Clinic.
Conroy, with a 32-slide presentation deck also detailed the growth opportunities for Exact in other vital detection markets like pancreatic, esophageal, bladder, ovarian, cervical, stomach, lung, lymphoma, melanoma, kidney, and uterine cancers.
Analysts Busy Adjusting Their Models
Wall Street analysts have to re-work their earnings models for Exact to include the new contributions of Genomic Health (GHDX). Until then, there will be some confusion in the year-over-year comps and growth rates. Still estimates have gone up and the bullish investment calls for the stock are also rising.
In early January, Exact Sciences was initiated at BTIG with a Buy rating and $127 price target. Analyst Amanda Murphy told investors she still sees meaningful room for growth in utilization of colorectal cancer (CRC) screening. The analyst says market penetration of Cologuard is currently around 5%, and assumes Exact can get to 40% market penetration by 2030. Additionally, she says the acquisition of Genomic Health adds a key sales channel in oncology.
After the company's pre-announce, Oppenheimer analysts said they believe current Street consensus under-estimates operating leverage offered by the acquisition of Genomic Health. They see upside to consensus 2020 and 2021 EPS estimates based on potential upside to the merger synergy target of $25 million by the end of 2022 and continued healthy uptake of Cologuard. While not having visibility on future business development, the analyst team believes there is a strategic rationale for acquiring additional products to sell through GHDX’s medical oncology distribution channel. They reiterated their $130 price target.
Recently, I recommended Exact Sciences to investors as a healthcare "AI" play because the use of data mining, modeling, and machine learning (ML) in detecting and treating cancer will continue to be a growing trend.
Exact and Genomic have never used the words "artificial intelligence" in reference to their science. But their diagnostic intelligence systems are not only heavily based on precision data analysis, but benefit from building a large database of test outcomes.
The Oncotype DX portfolio of breast, colon and prostate cancer tests applies advanced genomic science to reveal the unique biology of a tumor in order to optimize cancer treatment decisions, helping to guide treatment decisions for more than 1 million cancer patients worldwide.
The company's flagship product, the Oncotype DX Breast Recurrence Score test, is the only test that has been shown to predict the likelihood of chemotherapy benefit as well as recurrence in invasive breast cancer.
On Jan 22, following the release the night prior of abstracts for the 2020 American Society of Clinical Oncology (ASCO) Gastrointestinal Cancers Symposium, EXAS shares popped 10% up to $96.
The catalyst was that initial trial data from two private competitors couldn't match Cologuard. An anticipated subset of data from Freenome’s AI-EMERGE study used AI/ML to identify patterns of cell-free biomarkers in the blood to detect cancer early. Freenome's blood-based screening test was able to detect 80% of early-stage colon cancers and 83% of late-stage tumors, whereas Cologuard detected 92% of all colon cancers in its pivotal clinical trial.
Another private company Grail, presented data from its Circulating Cell-free Genome Atlas (CCGA) study, which tests for tumor DNA in patients' blood. The study found 82% of all colon cancers, including 96% of stage 4 tumors, but only detected 72% of tumors in earlier stages 1-3.
At least for now, Exact will maintain a leading position in cancer diagnostics, especially given its partnership with Mayo Clinic on liver cancer detection. I recommend accumulating the stock on dips into the mid-$80s.
Disclosure: I own EXAS shares for the Zacks Healthcare Innovators portfolio.
Bear of the Day:
The gaming industry is rapidly evolving, with the next-generation of gaming underlined by mobile devices, and augmented/virtual reality (AR & VR). Local video game shops no longer have the appeal they did as physical video games are no longer a necessity. GameStop and its cohorts are on their way out, and this firm’s stock price reflects this. EPS estimates for GME have been trending down, pushing this stock into a Zacks Rank #5 (Strong Sell).
GameStop was a staple in the gaming community for years, with new video game debuts inciting hordes of dedicated gamers to line up outside, ensuring they secured a copy before it was sold out. The video game market continues to soar, but GameStop has been unable to adapt to the rapidly changing landscape. People no longer have any need to go to the store to buy their games. Everything is now done online through a marketplace portal on your console, PC, or mobile device. GameStop is another brick-and-mortar victim of the retail apocalypse.
GME hit its all-time high at the end of 2007 of $63.30 then took a nosedive during the great recession, which is expected for any consumer-discretionary retailer, but this stock never fully recovered. The shares hit another high of $56.50 at the end of 2013, but have since broken down. Today GME is trading at less than a tenth of its 2013 price.
GameStop Corp. price-consensus-eps-surprise-chart | GameStop Corp. Quote
In the last 52-weeks GME has lost over 70% of its value, and still I see no price at which I would purchase these shares. GameStop debt is in junk bond territory, and I only see this trend continuing as the companies antiquated business model eventual fizzles into bankruptcy.
GME has had an adverse price action from the last 6 quarters due to misses on estimates and soft guidance. GameStop is slipping into quarterly losses. Analysts are anticipating a continued drop in sales and income for the projected years to come. The company has been forced to put on increasingly more debt every quarter in order to maintain its current operations, which is not a sustainable strategy.
The only segment in GameStop’s Q3 report that saw growth was collectibles, which now makes up over 13% of its sales in Q3. The company is slowly turning into an antique shop.
GameStop has closed over 600 stores since the end of 2014 (10% of total store count), and more are closing ever quarter.
GameStop is a quintessential retail apocalypse business. The company has been unable to adapt to the digitalizing economic landscape. I see these shares as toxic and would stay away.
Intel, Intuitive and Skyworks All Beat Earnings
After another record close for the Nasdaq Thursday, Intel Corp. reported Q4 earnings results that is keeping the party going into after-hours trading. Earnings of $1.52 per share easily surpassed the $1.24 in the Zacks consensus, with $20.2 billion in top-line sales outpacing the $19.2 billion expected. These figures were led by a notable positive surprise in its Data Center Group (DCG), which brought in $7.2 billion in the quarter.
Guidance for Q1 and full-year 2020 were up as well, helping shares boost as much as 6% on the earnings release. Intel stock has come down a bit since, but remains at strong levels. The company had been running hotter going into the earnings numbers, but had not seen the extravagant multiples of some of its Big Tech brethren. Intel has not missed an earnings consensus since Q4 2013, exactly 6 years ago.
Intuitive Surgical, a zacks Rank #1 (Strong Buy) company, also put up better-than-expected numbers in its fiscal Q1 2020 report Thursday afternoon: $3.48 per share represent gains of 22% year over year and above the #3.26 expected, on $1.05 billion in sales which was down from the $1.23 billion we had been looking for. Shares are trading down in the late session by more than 1.5% on the mixed results.
Skyworks Solutions also reported earnings (fiscal Q1) after Thursday's close, posting a 3-cent beat to $1.68 per share, on a big swing upward in sales -- $896 million versus $880 million expected. Its reported $398 million in cash flow operations helped buoy the stock. Next quarter guidance was raised, as well: $1.46 per share on the bottom line and a range of $800-820 million on the top. Shares had trickled downward in the late hours, after a +2.63% day on the Nasdaq during regular trading.
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Click to get this free report Skyworks Solutions, Inc. (SWKS) : Free Stock Analysis Report Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report Exact Sciences Corporation (EXAS) : Free Stock Analysis Report GameStop Corp. (GME) : Free Stock Analysis Report Intel Corporation (INTC) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research