Genentech: Biotech Check
This biotechnology giant has good growth drivers, but also a noteworthy drag on the stock.
Biotech giant Genentech's latest earnings report signaled blue skies for the company, with the exception of one ominous storm cloud: Avastin. Despite posting a nearly 80% jump in profits during the second quarter, Genentech's stock has taken a 4% dive since its earnings release Tuesday. The drop stems from disappointing quarterly sales of colon-cancer drug Avastin, which missed analysts' expectations with revenues of $423 million versus Wall Street's $439 million estimate. (That ought to give us an idea of how short Wall Street's hair-trigger is.) Also not helping matters: Genentech announced a potential delay in regulatory approval of Avastin for use in treating breast cancer.
But Avastin's drag on the stock is offset by other growth drivers in the company's drug lineup, Piper Jaffray analyst Thomas Wei told clients on Wednesday. He thinks the Avastin dustup is a buying opportunity. Wei notes that several new noncancer drugs, such as Lucentis and Rituxan, offer growth potential. Wei says Genentech remains "one of" the best high-quality biotech stocks, rates it a "buy" and has a $117 one-year target price for the stock (symbol DNA). The shares traded at $81 Thursday.
Genentech's shares, which cracked $100 in December 2005, fell to $81 in early March and have since seesawed. For the second quarter ending June 30, the South San Francisco company reported earnings of 49 cents a share on sales of $2.2 billion, compared with 27 cents a share and $1.5 billion a year earlier. Based on strong sales of its stable of anticancer drugs, Genentech raised its 2006 forecast for earnings growth to a range of 55% to 60% from a previous estimate of 45% to 55%.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Morgan Stanley analyst Steven Harr also maintained an "overweight" rating on Genentech and raised his target price to $92 from $90 on Wednesday. "The light quarter is likely to pause the stock's recent upward trend," he wrote in a note to clients. "However, we continue to have significant conviction in the stock."
Opinions on this volatile stock aren't unanimous. Ron Ellis of Prudential Equity group downgraded Genentech based on "reduced market opportunity" for Avastin, and dropped his price target to $84 from $94.
Like many biotechnology stocks, Genentech isn't cheap on a price-to-earnings basis. At $81, the stock trades at 40 times analysts' 2006 earnings estimate of $2.02 per share, and 31 times the 2007 estimate of $2.59, according to Thomson First Call.
-
Starbucks BOGO and New Sweet and Spicy Drinks
For a limited time, Starbucks is announcing four new "swicy" drinks that are both spicy and sweet.
By Kathryn Pomroy Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut Warning
The main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
By Karee Venema Published
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields Spike
A good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
By Karee Venema Last updated
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks Rise
Strength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
By Karee Venema Published
-
Stock Market Today: Stocks Tumble After a Hot Inflation Print
Equities retreated after inflation data called the Fed's rate-cut plans into question.
By Dan Burrows Published
-
Stock Market Today: Stocks End Mixed Ahead of Key Inflation Reading
Equities struggled before tomorrow's big Consumer Price Index report.
By Dan Burrows Published
-
Stock Market Today: Stocks Closed Mixed in Choppy Trading
Volatility returned as market participants adjusted their expectations for rate cuts.
By Dan Burrows Published
-
Stock Market Today: Stocks Rally After Blowout Jobs Report
Stocks soared into the weekend as investors brushed off strong payrolls data and lowered rate-cut expectations.
By Dan Burrows Published