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Usually when a company is able to beat analyst estimates for earnings the stock gets rewarded on Wall Street, but that is not the case today for pharmaceutical giant Genentech Inc. (NYSE: DNA). The company reported its third quarter numbers last night, beating estimates by a penny, but the stock is being sold off by traders today, dropping 1.9% in early morning to$75.94 down $1.56.Analysts had been expecting to see the company show earnings of 72 cents a share, and the actual results came in at 73 cents a share for the quarter. This past quarter the company was able to experience a 22 percent earnings jump, so why is the stock lower today?
The main reason why analysts are are beating up the stock today is concern over the company's ability to maintain its current momentum. Analysts are fearing that the company is not going to be able to continue to shine in the light of increased competition and a saturated market place.
One example of the market saturation problems can be illustrated by looking at the company's cancer drug Avastin, which treats lung, breast and colon cancer. The company boasted about the drugs recent sales, noting a 37 percent increase year over year, but with success comes a price. As mentioned by Lehman Brothers equity analyst Jim Birchenough, "the double-edge sword of oncology is you get rapid adoption, but you tend to reach full saturation quickly."
So it was definitely a good quarter for Genentech, but as we see today on Wall Street, the company has definitely got high expectations that it will be forced to meet in the future to stay in the good graces of traders.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer
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