Genentech To Set Biotech Sector Earnings Bias (DNA)

Genentech Inc. (NYSE:DNA) is set to report earnings after today’s close. First Call has consensus estimates at $0.72 EPS on $2.93 Billion in revenues.  The biotech giant usually offers guidance and the next quarter is also pegged at $0.72 EPS on $3.04 Billion revenues.  It did offer prior 2007 guidance at $2.85 to $2.95 EPS on a non-GAAP basis (see below for long-term plans)

We used to do a breakdown on by-drug sales, but it seems that as the coverage has become more and more focused that there is just about always an equal number of analysts saying how pleased they were in one drug and disappointed with another.  The company breaks out its individual sales in Rituxan, Avastin, Herceptin, Lucentis and more.

Analysts still have a positive bias despite a dead-money stock performance and the average price target remains above $90.00.  If you trust the current options pricing as an indicator, it looks like options prices are not expecting a price change of more than $1.00 to $1.15 in either direction.

As far as the chart is concerned, this one has been dead money for two-years despite its stellar growth.  The good news of late is that the long-term downtrend chart pattern that was in place all year was broken in September.  That isn’t yet indicative of any sharp reversal, but at least it is out of that range that took it to two-year lows this summer.

With a $77.00 price it has roughly an $81 Billion market cap.  Shares have traded in 12-month range of $71.43 to $89.73 and shares briefly flirted with the $100 share price handle in late 2005.  As far as forward 2008 estimates, at $3.50 EPS and $13.5 Billion consensus, Genentech trades with a forward 2008 P/E ratio of 22 and a multiple of 6-times revenues.  Here is a link to the company’s pipeline as well.

In 2006 the company offered an update to a much longer-term plan to 2010:
20 new molecules into clinical development;
15 major new products or indications onto the market;
#1 in US Oncology sales;
average annual compounded annual non-GAAP EPS growth rates of 25%;
cumulative cash flow of $12 Billion.
We noted the huge options open interest in a competitor on Friday;
And by now it is well known that Biogen-Idec is up for sale; this could impact the Genentech-Biogen relationship over Rituxan sales;
Telik is way up after a clinical hold was released.

Jon C. Ogg
October 15, 2007