Exact Sciences Stock Breaks Down After Merger Agreement

Exact Sciences Corporation (EXAS) shares fell more than 7% during Monday's session after the company announced a $2.8 billion deal to acquire Genomic Health, Inc. (GHDX) in a cash-and-stock acquisition valued at $2.8 billion. Under the terms of the deal, the Genomic Health shareholders will receive $27.50 per share in cash plus $44.50 in Exact Science common stock. The combined company is projected to generate $1.6 billion in revenue by 2020 with $25 million in synergies.

The news comes on the heels of Exact Sciences' second quarter financial results. The company reported revenue that rose 94.3% to $199.87 million, beating consensus estimates by $17.69 million, and net losses came in at 30 cents per share, beating consensus estimates by 26 cents per share. Despite the better-than-expected results, the merger announcement predictably led to a decrease in share price. Genomic Health shares rose about 4% on the news.

From a technical standpoint, the stock broke down from the 50-day moving average at $110.57 to briefly approach the $100.00 level. The relative strength index (RSI) fell toward oversold territory with a reading of 38.65, but the moving average convergence divergence (MACD) accelerated its downtrend dating back to early July. These indicators suggest that the stock could continue to move lower before seeing some consolidation.

Traders should watch for some consolidation between reaction highs of around $105.00 and the 50-day moving average at $110.57 over the coming sessions. If the stock breaks down from those levels, traders could see a move below $100.00 too $97.50. If the stock breaks above the 50-day moving average, traders could see a move to close the gap to $115.00, but that scenario appears less likely to occur at the moment.

The author holds no position in the stock(s) mentioned except through passively managed index funds.