Good Report for Buy-Rated DPL

DPL, Inc. (DPL) reported operating and financial results for its 4th fiscal quarter and full year 2007. On the top-line, DPL's consolidated revenue during the reported quarter totaled $370.9 million as compared to $351 million in the 4th quarter of 2006. On the bottom-line, the company reported operating earnings of $0.40 per diluted share for the three-month period ended December 31, 2007, compared to $0.04 per diluted share in the comparable fourth quarter of 2006.

DPL reported financial results for its 4th fiscal quarter of 2007. Total revenue of $370.9 million was up 5.7% from $351 million recorded during the 4th quarter of 2006, mainly due to higher miscellaneous revenues, and RTO ancillary revenues. These increases were partially offset by lower wholesale revenues. GAAP-based net income in the recent 4th quarter of 2007 was $46.3 million or $0.40 per diluted share, compared to $7.3 million or $0.06 per diluted share reported in the 4th quarter of 2006.

The company reaffirmed its 2008 earnings estimate range of $1.90 to $2.10 per share based on an estimated 118 million shares outstanding and 2009 earnings estimate range of $2.10 to $2.40 per share based on an estimated 120 million shares outstanding. On the bottom-line, operating income in 2007 was $1.80 per share versus $1.02 per share in 2006. We advise investors to Buy the stocks at this time and have fixed a six-month target price of $29.

DNA Approval May Give Biotech a Bump

As of around mid-day Monday, shares of Genentech are up about 10%. What's the big news, for people who are as yet unfamiliar?

Yeah, this was pretty big - and surprising - news. Friday after the bell, Genentech (DNA) received what is known as accelerated approval for their blockbuster cancer drug Avastin, in what's known as first-line treatment, which is patients that have not been previously treated. Fist-line treatment with chemotherapy for metastatic breast cancer.

This is a very large market - it's probably an additional billion-dollar opportunity for Genentech with Avastin. Avastin is already a multi-billion-dollar drug that's on the market, approved several years ago for colon cancer, approved a few years ago for lung cancer, and now breast cancer as of Friday. So almost all solid tumors - which is what Genentech's strategy is - but the breast cancer was something that was a surprising approval, because the data in breast cancer looked good, but what we expected is that the FDA would want to see more data before outright approving the drug.

And actually, what they did is grant accelerated approval, which means they've approved the drug - it's on the market and can be marketed - but they're waiting to still see more data before they grant it full approval. And as far as Genentech and physicians and patients are concerned, there's no difference in terms of selling the drug. The only thing is, there are several more trials in breast cancer that are ongoing that Genentech has agreed with the FDA they will complete and submit. So that's really the only difference between the accelerated approval and the full approval.

Either way, it was a surprise move for us. We didn't expect this approval until maybe another six-to-nine months. And so, as a result, we're ratcheting up some sales forecasts and some EPS, and we think everybody else on the Street is probably doing the same thing, and that's why the shares are up 10% [so far] today.

And this has also caused you also to upgrade Genentech to a Buy as of last Friday after the close, correct?

Absolutely. As soon as the news came out, I sat back in my chair and said this is surprisingly strong news. It's going to help them. Avastin was a product that has very high penetration already in colon cancer. It's getting to be pretty high penetration in lung cancer. And we wrote a research report maybe about three weeks ago when Genentech first issued earnings for the fourth quarter 2007 and guidance for 2008, and the title of our research report was, Avastin Breast Cancer Decision to Set the Tone for 2008. And we had fully expected it to be a delay, and we had expected the tone for the year to be a wait and see. Hence our Hold rating.

But when this news came out as an approval, we said that's great news - this is going to accelerate Avastin sales. I mean, we're talking several hundred million over the next couple quarters that we had not modeled. You know, the company put out guidance three weeks ago and said, EPS between $3.30 and $3.45. We'll be at $3.30 without breast cancer; we'll be at $3.45 or thereabouts with Avastin breast cancer. And so we were at $3.36 cents - much closer to the lower end - and consensus according to the wizards over at the Zacks database were $3.37. So you see the consensus was much closer to the lower end, more in the middle.