However, the pipeline is solid and with renewed Avastin and Rituxan growth, the valuation looks very attractive at this level. We view the name as a core healthcare holding and reiterate our Buy rating on the stock.The key growth driver for Genentech is blockbuster Avastin, and we believe the February approval of the drug for treating metastatic breast cancer opens up a potential billion-dollar opportunity for the company.  Breast, renal cell, and glioblastoma cancer indications could double the market potential for Avastin.

We are now forecasting 2008 earnings of $3.44 per share for the company. We have also raised our forecasts for 2009 through 2012 based on an improved ramp in Avastin sales and small off-label use of Rituxan in multiple sclerosis.

Zacks Quant Research has shown that stocks with positive earnings-per-share (EPS) revisions have a tendency to outperform over the next six to twelve months. Over the past six months, the consensus EPS forecast for Genentech, according to Zacks Research, has increased to $3.44 from $3.37.  As consensus forecasts have moved higher over the past few weeks, so has the stock.  We expect this trend to continue. 

Our $90 target is 26x our projected 2008 EPS figure of $3.44. Based on our calculated 5-year EPS Compound Annual Growth Rate (CAGR) of 13 percent, this is a PEG ratio of 2.0x. This 13 percent CAGR is up 2 percent from our previous (pre-Avastin breast cancer approval) report. This 2.0x PEG is historically consistent with where Genentech has traded over the past several years.