Gen-Probe Inc. ( ) is a stock that has had an interesting year so far in 2009, with shares wildly swinging between $38 and $48. Shareholders of GPRO must wonder why the market’s impressive rally of the March lows has largely missed their stock as shares are only up 5% from the market’s nadir and GPRO is down 2% year to date. Judging by the market’s initial reaction to this firms second quarter earnings release, Friday is shaping up to be another wild day.
Gen-Probe is in the business of making products that clinically test for human diseases. The company’s second quarter was not unlike the majority of companies that have reported recently, they were a little light on revenue but earnings topped Wall Street’s profit estimates. Earnings per share came in at $.45 ex-items versus consensus estimates of $.43, sales were about $120 million in the quarter just about even with a year ago while expectations were for $123 million. Results were hurt by the stronger dollar and weak blood screening revenue coming from Novartis AG’s ( ) Chiron business.
The stock is getting absolutely crushed in premarket activity, down about 13% at the moment. The reason for the sell off is that the company trimmed the top end of its full year profit and 
revenue targets because of slower than hoped blood screening revenue. The top of the revenue guidance was dropped by $7 million to the range of $490 million to $503 million, which led the firm to cut 5 cents off of its upper range of EPS to a range of $1.85 to $1.95. This puts consensus analysts estimates of $1.93 EPS on sales of $501 million dangerously near the top of the firm’s guidance.
While the company did miss revenue targets for the quarter and lowered guidance, the shares are catering beyond what we think is justified. At Ockham, we have Gen-Probe as Undervalued currently, and we believe that this disappointing result could provide a buying opportunity. As we mentioned earlier, the stock has not gotten the boost that most in the market have recently, in fact it will open Friday at its lowest level since November. The stock has a strong balance sheet and is still growing, and their performance is certainly no worse than many others that have benefitted from the market’s rally. Long term investors can be excited about getting a quality company at this price because it has fallen out of favor with the market.
