Exact Sciences Corporation (EXAS Quick QuoteEXAS - Free Report) is gaining from continued strength across the Screening and Precision Oncology businesses. The growing uptake of the company’s Oncotype DX Breast and therapy selection products are major advantages. However, mounting expenses and stiff competition do not bode well.

In the past year, this Zacks Rank #3 (Hold) stock has gained 6.3% against a 9.1% decline of the industry and a 4.7% decline of the S&P 500 composite.

The renowned global medical device company has a market capitalization of $11.35 billion. The company’s long-term expected growth rate of 28% compares with the industry’s growth projection of 19.3%.

Let’s delve deeper.

Key Drivers

First Strategic Priority Bodes Well: The Exact Sciences team is focused on its three strategic priorities — getting more people tested; enhancing customer experience; and advancing the pipeline of blood-based cancer diagnostic tests. In terms of the first priority, the company is confident about capturing at least 40% of the U.S. colorectal cancer screening market banking on strong sales teams, partnership with Pfizer, innovative marketing campaign and deep-payer relationships providing a powerful commercial organization to support Cologuard's growth.

The company is banking on three areas to enhance Cologuard growth. Building the best and most effective commercial organization in healthcare by investing in the leadership team, training and sales force effectiveness is its first strategy. The next process includes improving the customer experience by making it simpler to order Cologuard electronically and continue rescreening patients every three years. The final strategy includes screening more people starting at age 45 to catch cancer earlier. During the fourth quarter, nearly 160,000 healthcare professionals ordered Cologuard, a new record, and the rate of people the company screened hit an all-time high.

Advancing New Solutions: With regard to the third priority of advancing new solutions, Exact Sciences is planning several key milestones to bring 6 innovative cancer diagnostics from its pipeline to patients in need.

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In February 2023, Exact Sciences launched OncoExTra therapy selection test in the United States. OncoExTra is a next-generation sequencing (NGS), comprehensive DNA and RNA-based genomic test providing doctors and their patients a complete molecular picture of the patient's cancer. The test provides reliable and actionable results, which are personalized to each patient.

Upbeat Guidance: The company expects revenues in the range of $2,265-$2,315 million. The Zacks Consensus Estimate for the same is pegged at $2.26 billion.

For 2023, the company expects its Screening revenues in the range of $1,660-$1,690 million. The company expects Precision Oncology revenues in the range of $600-$620 million. COVID-19 testing revenues are expected to be $5 million.

Downsides

Escalating Costs: Exact Science adopted several strategies to improve its revenue performance. These include portfolio expansion and penetration in the international arena. So far, this has significantly escalated costs and operating expenses for the company.

In the fourth quarter of 2022, Exact Sciences’ gross margin contracted 148 basis points (bps) to 73%. Research and development expenses rose 6.5% year over year. General and administrative expenses rose 8.1% year over year. These escalating costs are putting significant pressure on the company’s bottom line.

Tough Competitive Landscape: Given the large market for colorectal cancer screening, Exact Science faces numerous competitors, some of which possess significantly greater financial and other resources and development capabilities than the company.

The company is currently aware of at least 13 companies — Epigenomics AG, EDP Biotech Corporation, Freenome Inc., GRAIL, Inc., CellMax, Inc., Volition Diagnostics, Cambridge Epigenetix Limited, Nucleix Ltd., Singlera Genomics, DiaCarta, Genomictree, Bioprognos, and PapGene, Inc. — that have developed, or are developing, liquid biopsy tests for the detection of colorectal cancer.

Estimate Trend

In the past 60 days, the Zacks Consensus Estimate for Exact Sciences’ loss for 2023 has been constant at $2.76.

The Zacks Consensus Estimate for 2023 revenues is pegged at $2.29 billion, suggesting a 9.9% rise from the 2022 reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) , BIO-Rad Laboratories ((BIO Quick QuoteBIO - Free Report) and Avanos Medical, Inc. (AVNS Quick QuoteAVNS - Free Report) .

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 15.2%. HOLX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 30.6%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Hologic has gained 1.7% against the industry’s 17.5% growth in the past year.

Bio-Rad Laboratories carrying a Zacks Rank of 2 at present  is expected to release first quarter 2023 earnings on May 4. BIO has an earnings yield of 3.3%, which compares favorably with the industry’s negative yield of 2.9%.

BioRad Laboratories’ earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 27.54%.

Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.

Avanos has lost 13.7% compared with the industry’s 17.5% decline in the past year.