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Saturday, 14 April 2007
Genentech (DNA) "Long-Term Review #6"

 

 

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

One of the problems about blogging for a long time and writing many entries is that the early entries more or less get buried under the later discussions.  A few months ago I started digging back to the first entries on this website to find out how they turned out.  I already do the one year retrospective.  The early entries are going on four years out.  I want to know what has happened to all of them and if these stocks still deserve to have a spot on my blog in a favorable light.

On February 24, 2007, I wrote up my "Long-term review #5" Agree Realty.  ADC was posted on May 16, 2003.  The next entry on the blog is dated May 19, 2003, and is about Genentech (DNA).  I wrote:

"May 19, 2003 Genentech (DNA)


Overall a lousy day in the market. Genentech (DNA) tops the largest percentage gainers today with news about a new possible treatment for Colon and Rectal Cancer. Advanced colon and rectal cancer has a rather dismal prognosis and we all know people who have succumbed to the disease. Anyhow Genentech has a new drug called AVASTIN which along with traditional chemotherapy has successfully extended the lifespan of individuals in their study who have this life-threatening illness.

A nice coincidence for us is that Genentech FITS our protocol...last quarter (ending 3/3103), per our cnn.money site, revenues rose 29% (!) to $768.6 Million, net income rose 59% to $151.5 Million.(!)...

Looking at the past 5 years, as we like to do around here, we find that the revenue has increased from $1.2 billion in 1998, 1.4 billion in 1999, 1.7 billion in 2000, 2.2 billion in 2001, and 2.7 billion in 2002. Extrapolating this latest quarter (x4) gives us over 3.0 billion for 2003. The consistency of the revenue growth is impressive.

The last four quarters as reported in Morningstar (prior to the CURRENT quarter noted above), we find that revenues increased by 13.59%, 26.45%, 21.40%, and 29.69%....and the latest quarter up by 29% as well. Cash flow has improved...from 81 million positive in 2000, to 267 million in 2001, and 265 million in 2002 the latest year reported.

So at the moment (12:05 pm CST), stock is at $53.04 up $15.14 (WOW), p/e is a bit steep (to say the least) at 212.40....yikes....but otherwise this stock fits the bill....would add a position in my own portfolio (I do not own any shares nor does anyone in my family)...but I do not have a stock that needs to be sold due to a gain....but this is one for the list. Good luck investing. Bob"

 

Genentech was "picked" for Stock Picks Bob's Advice when it was trading at $53.04 on May 19, 2003.  DNA split 2:1 on May 13, 2004, making my effective "pick price" actually $53.04 x 1/2 = $26.52.  DNA closed at $81.33 on April 13, 2007, for a gain of $54.81 or 206.7% since posting.  I do not own any shares nor do I have any options or contracts on Genentech (DNA). 

 

 

Let's take a closer look at this stock and see if it still deserves a spot here!

What exactly does this company do?

According to the Yahoo "Profile" on Genentech (DNA), the company

"...engages in the discovery, development, manufacture, and commercialization of biotherapeutics in the United States."

How did the company do in the latest quarter?

On April 11, 2007, Genentech announced 1st quarter 2007 results.  For the quarter ended March 31, 2007, operating revenue came in at $2.84 billion, up 43% from the $1.986 billion in the same period last year.  GAAP net income increased 68% to $706 million from $421 million in the prior year first period.  GAAP earnings per share jumped 69% to $.66/share vs $.39/share reported in the 1st quarter of 2006. Continuing earnings per share were $.74/share in the quarter.

The company beat expectations on both revenue, which according to Thomson Financial, analysts had been expecting $2.74 billion, as well as earnings, which were expected to come in at $.67/share. 

How have they been doing longer-term?

Reviewing the Morningstar.com "5-Yr Restated" financials on Genentech, we can see the steady increase in revenue from $2.6 billion in 2002 to $9.3 billion in 2006.  Earnings have climbed from $.06/share in 2002 to $1.97 in 2006.  Shares have been stable and actually have dipped from 2002 with 1.067 billion shares in 2002 and 1.051 billion in 2006 and 1.053 billion in the trailing twelve months (TTM).

Free cash flow has been strongly positive and growing with $545 million in 2004 increasing to $924 million in 2006.  The balance sheet looks solid with $2.49 billion in cash and $3.21 billion in other current assets.  This total of $5.70 billion can easily cover the $2.16 billion in current liabilities and yields a healthy current ratio of 2.64. DNA also has $3.21 billion in long-term liabilities on the books per Morningstar.

What about some valuation numbers?

Looking at Yahoo "Key Statistics" on DNA, we can see that this is a large cap stock with a market capitalization of $86.66 billion.  The trailing p/e is a bit rich (but not as rich as back in 2003!) at 41.31, but the forward p/e (fye 31-Dec-08) is estimated at a much more reasonable 23.44.  In fact, with the rapid growth in earnings (5 yr expected) estimated, the PEG works out to a very nice 0.99.  Generally PEG ratios between 1.0 and 1.5 are reasonable from my perspective.

According to the Fidelity.com eresearch website, Genentech (DNA) has a very reasonable Price/Sales (TTM) of 9.23, well below the industry average of 94.68. The company is also far more profitable than its peers with a Return on Equity (TTM) of 24.47% compared to the industry average of (2.69)%.

Finishing up with Yahoo we can see that there are 1.05 billion shares outstanding with 1.05 billion of them that float.  As of 3/12/07, there were 8.71 million shares out short representing 3.2 trading days of volume or 0.8% of the float.  This does not appear to be a big factor in this heavily traded stock.

No dividend is paid per Yahoo and as I noted above, the last stock split was a 2:1 stock split on May 13, 2004.

What does the chart look like?

If we look at a price chart from BigCharts.com on Genentech (DNA) , we can see that the selection of Genentech back in mid-2003 was really very fortunate as it came just as DNA was making a very large move higher.  (My regular "point & figure" charts from StockCharts.com are currently unavailable.)


Summary:  What do I think about this stock?

In a word, this was one great stock that got away :).  In any case,

GENENTECH (DNA) IS RATED A BUY

The latest quarter was solid as the company beat estimates.  The company has continued to demonstrate solid performance in both revenue and earnings growth the past several years.  Free cash flow is growing, the balance sheet is solid, and the number of shares outstanding is absolutely stable.  Valuation is becoming more reasonable with a forward p/e in the 20's, a PEG under 1.0, a Price/Sales below its peers, with a ROE showing stronger profitability than similar companies in its industry.  Finally, the chart appears to be strong.  I would like to see a "point & figure" chart on this one....In any case, this company I "picked" back in 2003 still deserves a spot here on the blog!

Thanks again for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.   If you get a chance, be sure and visit my Stock Picks Podcast Website, where I discuss some of the stocks I write about here on the blog.

Have a great weekend everyone!

Bob 


Posted by bobsadviceforstocks at 11:24 PM CDT | Post Comment | Permalink
Updated: Saturday, 14 April 2007 11:31 PM CDT

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