DNA fully valued here?
- Thread starter indahook
- Start date
never short on valuation alone. you have to have another reason to short it.
this gap was a painful one to watch...looks like its filled it pretty well and now making a run at a 2 year high...the fundamental reasons why this runup has occurred are pretty outstanding..this new drug approval will have a gigantic impact on earnings and future growth and market share...i would look a little deeper before just jumping in...yes of course you will have intraday swings of $2.00 or so.....but remember, many people missed that overnights gap of $37 - $52 .....you can not count this $15.00 jump...you have to realize that this is merely the markup from the specialist to factor in the news -- so at this point in time, this is what a share costs...its not like someone loaded up 20 million shares at $40.00 and is now going to fade this runup...no one got in..this gap caught people sleeping...in fact if you look at that day, many stupid insitutions like Bank of America downgraded it as the news was just hitting and gap taking place.....at this point in time now that they have this potential huge huge approval, where does it trade from here....so looks like there have been allot buyers after $52.00.....
if it breaks the 2 year high on heavy volume...i would still be bullish...that ceiling is around $58.90ish....also watch the $60.00 strike calls for June and July...saw lots of volume today on the junes
if it breaks the 2 year high on heavy volume...i would still be bullish...that ceiling is around $58.90ish....also watch the $60.00 strike calls for June and July...saw lots of volume today on the junes
Bought the Jan05 Puts and selling the near-term against ...
Wouldn't short this though ... haven't you heard, DNA is curing Cancer?!? Could make Ebay look conservative ...
I agree with Optionsplayer. It seams that everybody was so negative on this drug before hand that nearly everyone was stunned when the news came out. From the Yahoo who downgraded the stock that morning:
Rating Change
Biotechnology
Genentech, Inc.
Holy Cow! Our Timing Couldnât Have Been Worse; Avastin
Excels in Phase III
May 19, 2003
DNA: $50.31
BUY
Volatility: Medium
12-Month Target: $73.00
Total Return to Target: 45.1%
Michael King
(212) 847-5734
michael.king@bofasecurities.com
Greg Butz
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gregory.d.butz@bofasecurities.com
Adam D. Cutler
(212) 847-5622
adam.d.cutler@bofasecurities.com
Top Picks
Ticker Rating Price Target
AMGN B $62.96 $71.00
? Avastin Hits Endpoints. This morning, DNA announced that it had
achieved the primary endpoint of increasing survival in its Phase III trial of
Avastin, DNAâs antibody against VEGF, in colorectal cancer. The company
indicated that the trial had hit both its primary and secondary endpoints.
? 5X5 Likely Achieved. Clearly, this is good news for DNA. Not only is the
trial outcome a home run, but it affirms the companyâs financial outlook of a
minimum average of 20% EPS growth per year out to 2005. In our view, the
company will now easily meet or exceed that guidance.
? Raising Rating to Buy. With this news, we cannot stand by our Sell rating
on the stock. As such, we are increasing our rating to Buy. We expect DNA
shares to open strongly today as investors realize the commercial potential
of Avastin (>$1 billion) and incorporate it into their valuation on the stock.
? Increasing Estimates. Given todayâs news and the beneficial effect we see
Avastin having on DNAâs income statement, we are increasing our Avastin
sales and FY04-08 EPS. Our FY03 estimate of $1.09 remains unchanged
and our FY04 increases to $1.39. Our target increases from $30 to $73.
? Valuation and Target Price Analysis: Our target is calculated by applying
a 2.4 multiple to a LT growth rate of 21.8% times our FY04 EPS of $1.39. TRMS B $46.85 $57.00
Least Favorites
BGEN S $40.52 $34.00
NONE
Sector View: We are bullish on biotech in â03 as earnings re-acceleration
and late-stage data should drive the group. We believe â03 could become the
biggest product year ever for biotech.
Sector Price Appreciation Potential (Median of Target Price): 8% B = Buy, N = Neutral, S = Sell, * = New Pick
Company Data FYE Dec 2002A 2003E 2004E
52-Week Range $40-25 EPS
Secular Growth (EPS) 22% Q1 (Mar) $0.22 $0.35 A N/A
Market Cap. $26.0 BB Q2 (Jun) 0.23 0.23 N/A
Avg. Daily Vol. 2,543,294 Q3 (Sep) 0.23 0.25 N/A
Debt/Cap. (3/03) None Q4 (Dec) 0.24 0.26 N/A
Est. Dividend/Yield NONE Fiscal Year $0.92 $1.09 $1.39
Previous $1.29
Index Data Calendar Yr $0.92 $1.09 $1.39
DJIA 8679 P/E 54.7 46.2 36.2
S&P 500 944 P/E/G 251% 212% 166%
With The Stock Up 40%, Whatâs An Investor To Do?
In our view, buy. As we have stated in the past, Avastin is the single drug in DNAâs
pipeline to which it owns all the rights. Each $100 million is sales equates to roughly
$0.10 per share. We believe Avastin possesses billion-dollar potential and will enjoy rapid
adoption. Avastin should enjoy several years free from competition. The competition is in
Phase I/II testing. This includes compound from Cephalon, ImClone Systems, Regeneron,
AstraZeneca, Novartis and MedImmune, among others. Further, the company has several
additional positive milestones coming between now and year-end that should continue to
fuel investor interest. These include FDA approval of Xolair for allergic asthma, FDA
approval of Raptiva for psoriasis and Phase III trial results from OSI Pharmaceuticalsâ
Tarceva. In addition, we envision a 2H03 FDA filing for Avastin, with a rapid approval
turnaround from the FDA based on its objective of approving life-saving cancer drugs.
We believe Avastin not only fulfills the desires of the FDA, but the marketplace as well.
We are therefore raising our rating to Buy and are establishing a $73 price target. Our price target is calculated by applying a 2.4 PE/G multiple to a FY03-08 EPS growth rate
of 21.8% times our FY04 EPS of $1.39. The 2.4 PE/G multiple is the approximate FY03
average PE/G of the profitable biotechs (excluding BGENâs group high multiple of 5.1).
One last thing about biotechs, what is amazing is that this news didn't seam to get out. Most of these trials are done through the same people over and over. You would have thought that somewhere somebody would have leaked. My brother has worked for a series of biotechs and in most cases, he knew exactly how his competition was doing.