Grab your microscopes and petri dishes, you science-loving Fools. We're going to start off this week's news with a bit of genetic testing. Biotech great Genentech (NYSE:DNA) reports its fiscal Q1 2006 numbers after close of market tomorrow.
What analysts say:
- Buy, sell, or waffle? Thirty-two analysts follow this popular company, and their opinions are split right down the middle -- half say buy, and half say hold.
- Revenues. Little wonder there are no sells to be found. Analysts expect this multibillion-dollar biotech behemoth to grow its quarterly earnings by another 34%.
- Earnings. Profits are expected to rise even faster, up 41% to $0.41 per share.
What management says:
In the January earnings release describing Genentech's performance in fiscal 2005, executive vice president for commercial operations Ian Clark observed, "Genentech set record sales across its product portfolio in 2005."
Looking forward, president of product development, Dr. Susan D. Hellmann, noted that the firm had 13 new projects in its pipeline in 2005. CEO Arthur Levinson cited this "strong scientific foundation" in promising to continue growing (non-GAAP) earnings by 35% to 40% this fiscal year.
What management does:
Despite Genentech's gross margins declining somewhat over the past 18 months, the company has consistently expanded its operating and net margins. Growing sales at 45% year over year helped accomplish that by allowing the firm to spread its costs among an increasing number of products. It also helps that the firm's operating costs are rising nowhere near as fast as its sales. R&D expenditures grew only 36% over the last six months, for example. Meanwhile, selling, general, and administrative costs actually declined 6%.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
86 |
85.9 |
84.5 |
84.5 |
85.2 |
84.8 |
|
Op. |
24.4 |
26.2 |
26.9 |
27.6 |
29.4 |
29.8 |
|
Net |
16.6 |
17 |
17.5 |
18.5 |
18.9 |
19.3 |
One Fool says:
My Foolish colleague Stephen Simpson put his finger on the primary danger of investing in Genentech in a column back in January: expectations risk. He noted that Q4 results showed Genentech growing revenues by 44% and profits by 64%, but observed that even this might disappoint investors who were hoping to see analyst earnings estimates "blown away" by "double-digit percentages."
You've heard the phrase "priced for perfection" before, right? Well, in your head, right next to that phrase, insert a mental picture of a double helix, and label it DNA.
Competitors:
- Bristol-Myers Squibb (NYSE:BMY)
- Novo Nordisk (NYSE:NVO)
- Johnson & Johnson (NYSE:JNJ)
Fool contributor Rich Smith does not own shares of any company named above.
