Today, Exact Sciences announced it would be issuing $500 million in bonds. Yes, a half billion. Huge news. Here’s why.
First, it means the days of dilution are over. That was a huge bear case, that the company would continue diluting. They aren’t anymore.
Second, and almost nobody knows this unless they were at the JP Morgan conference like subscriber and friend “Sailing Away” was, is that an analyst point blank asked CEO Kevin Conroy if Exact would buy a billion dollar company. The answer, paraphrased, is that it’s hard to find the right company. Hmmm…
I have been talking about strategic transactions for Exact since the hiring of CFO Jeff Elliott away from Robert W. Baird where he was an analyst. I can only think this cash raise has at least a little to do with a potential strategic move and not just having money for operating expenses.
Here’s what I’m thinking right now. But first, please re-read the articles on Exact I wrote last year.
Nothing has changed with the company as far as I’m concerned. Remember, I asked Conroy about debt vs equity to raise cash at the annual meeting.
So, the share price now flopping around is simply fickle markets being fickle. (I also think this is a sign of how the whole market is going to get soon. So, if you haven’t crawled up to 25% cash yet, do it, do it NOW! See next piece on volatility trade.)
The gap at about $51 has filled twice now and bounced off the area just below there. Usually that would mean start accumulating. However, I think we need to take a deep breath. Most of us own EXAS already at around 2-4% of a portfolio. There is no need to rush. This is still biotech and things could get volatile. We want to look for cherry opportunities. There is likely to be some angst over the cash raise. Let it play out.
The 200-day moving average is a shade under $40. There is also a little gap just above that. I think that is the cherry tree. While you could sell some cash-secured puts here at $45 for February, I’d wait just a bit.
If Exact gets down to $40ish right before earnings, that might be a spot to sell puts and buy LEAPs. We’ll see.
UPDATE:
well, I just read up on the bonds offered by EXAS, there will eventually be dilution, but at $75.43 per share. This is interesting. If we get a dip in EXAS shares to lower $40s, those bond prices will come down off par. That could present an interesting convertible bond buying opportunity.
