Stocks Rally on Robust IBM Results. IBM Surprises With Exceptional 4Q. Genentech 4Q Profit Rises 6 Percent.

Jan.14, 2008 in Market Outlook

Wall Street Advances Sharply After IBM Earnings Forecast Lifts Hopes for Earnings Season

NEW YORK (AP) — Wall Street advanced sharply Monday, with solid preliminary results from IBM encouraging investors to go back into the stock market after last week’s rout.International Business Machines Corp., one of the 30 Dow Jones industrials, released preliminary earnings estimates for the fourth quarter that were 24 percent above year-earlier levels. The results also beat the forecast of analysts surveyed by Thomson Financial.

After falling nearly 250 points on Friday, the Dow rose more than 170 points Monday.

“The market was pretty oversold,” said Richard E. Cripps, chief market strategist for Stifel Nicolaus. “We were due to bounce back, and the IBM news didn’t hurt.”

IBM’s news, coming before as earnings season is about the get under way in earnest, did raise some hopes that fourth-quarter results might not be as bad as feared.

Investors also moved back into financial services stocks ahead of Citigroup Inc. earnings on Tuesday and Merrill Lynch & Co.’s report on Thursday. It is expected both companies will announce further capital injections to stanch bigger-than-feared mortgage-related losses.

The Dow gained 171.85, or 1.36 percent, to 12,778.15. IBM was the biggest gainer in the Dow, rising $5.26, or 5.4 percent, to $102.93.

Broader stock indicators also rose. The Standard & Poor’s 500 index added 15.23, or 1.09 percent, to 1,416.25 and the Nasdaq composite index shot up 38.36, or 1.57 percent, to 2,478.30.

Treasurys were trending slightly higher after fluctuating. The yield on the benchmark 10-year Treasury note was 3.79 percent, down from 3.81 percent late Friday, and then fell to 3.77 percent in after-hours trading on Monday. Prices and yields trade in opposite directions.

With no major economic data on the calendar, investors focused on corporate and commodities news. Gold futures hit a record, briefly venturing above $913 an ounce as the dollar tumbled against other major currencies. The euro reached a new high above $1.49.

Other commodities were higher, too. Crude oil rose $1.51 to settle at $94.20 a barrel on the New York Mercantile Exchange.

Peter Dunay, investment strategist at Leeb Capital Management, believes the run in commodities prices will continue as Wall Street eyes what the Federal Reserve will do at its Jan. 29-30 meeting. Chairman Ben Bernanke has convinced investors the central bank will cut rates, and the expectation of cheaper money also bolstered sentiment Monday

“We’re expecting inflation to be a problem, and believe the commodity demand is going to continue,” Dunay said. “We think the Fed is going to throw as much money as they can to keep us out of recession, or keep the recession mild, so commodities will be higher.”

Stocks sold off sharply last week after a chorus of Wall Street economists predicted the U.S. is about to slide into a recession. The Dow lost 1.51 percent during the week, the S&P 500 dropped 0.75 percent and the Nasdaq gave up 2.58 percent. However, a recession cannot be declared until there are two quarters in a row of economic shrinkage as measured by gross domestic product data, and that has not occurred yet.

In corporate news, General Motors Corp. Chief Financial Officer Fritz Henderson said that although the GMAC finance wing’s auto loan delinquencies were up slightly in the third quarter from year-before levels, the problems for auto loans were not nearly as severe as the credit troubles in the real estate sector. GM sold control of GMAC in 2006 but still owns a large minority stake. GM rose 19 cents to $23.69.

Sears Holdings Corp. warned that its upcoming fourth-quarter report could show a decline as high as 51 percent from year-earlier levels, adding to concerns that economic weakness is slowing the retail sector. The company Monday forecast a result of $2.59 to $3.48 a share, which would be down from $5.33 a year before and a Thomson Financial forecast of $4.43 a share. Sears fell $4.79, or 5 percent, to $91.38.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 3.51 billion shares, compared to 4.3 billion shares on Friday.

The Russell 2000 index of smaller companies rose 7.83, or 1.11 percent, to 712.48.

Overseas, the Tokyo stock market was closed for a holiday Monday. In Europe London’s FTSE 100 rose 0.22 percent, Germany’s DAX advanced 0.18 percent and Paris’ CAC 40 gained 0.60 percent.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

IBM Reports Stellar Quarter Despite Perceptions of Economic Weakness

BOSTON (AP) — The fourth quarter usually is the best time of the year for IBM Corp., but rarely does it look this good.The technology company said Monday that its earnings per share in the quarter blew past analysts’ expectations by 20 cents. IBM’s executives felt the numbers were too good to sit on, so they released a peek at the results in advance of Thursday’s full report for the quarter.

Genentech’s 4th-Quarter Profit Rises 6 Percent, Stock Falls

SAN FRANCISCO (AP) — Genentech Inc. barely scraped past Wall Street’s expectations Monday as the biotech giant renowned for its phenomenal growth posted a 6 percent rise in fourth-quarter profits.Genentech’s stock dropped in after-hours trading as sales of a key product also fell below expectations.

Shares of Genentech fell $1.03 to $69.61 in after-hours trading after closing Monday at $70.64.

Last year, Genentech posted a 75 percent surge in fourth-quarter profits, and investors have become accustomed to growth in the high double digits quarter after quarter.

The company earned $632 million, or 59 cents per share, compared with profit of $594 million, or 55 cents per share, during the same period a year earlier. Revenue rose to $2.97 billion from $2.71 billion.

Excluding stock-option expenses and other one-time expenses, the company said it earned 69 cents per share. Analysts polled by Thomson Financial expected earnings per share of 67 cents on total revenue of $2.97 billion.

Genentech executives said in an interview that it was unrealistic to expect such a large company to continue growing at the same rate as seen in the past.

“I don’t think anyone would rightly expect us to sustain growing a business this size at those numbers,” said Chief Financial Officer David A. Ebersman.

At the same time, Ebersman said, the 31 percent jump in the company’s overall profits in 2007 offered proof that Genentech still had room to grow, even if more slowly than in the past. Earnings jumped 65 percent in 2006 over the previous year.

Genentech is the nation’s biggest biotechnology company, based on market capitalization. The total value of its outstanding shares is $74.4 billion.

Some analysts said Genentech’s earnings reports don’t always have much of an impact on the company’s stock.

“Genentech knocked the ball out of the park over the last year and a half in terms of earnings, and the stock price didn’t reflect that at all,” said RBC Capital Markets analyst Jason Kantor. Genentech shares fell about 18 percent in 2007.

To get investors excited, the company needs several ongoing clinical trials to produce positive results, Kantor said. “Right now what’s going to get the stock moving in 2008 is not the earnings numbers,” he said.

Two trials are testing Rituxan, already Genentech’s second biggest source of revenue as a treatment for rheumatoid arthritis and non-Hodgkin’s lymphoma. The company wants to offer Rituxan as a treatment for lupus and and multiple sclerosis.

Rituxan sales brought in $596 million last quarter, up 6 percent from the same period a year ago.

Genentech’s breast cancer drug Herceptin brought in $327 million for the quarter, a two percent increase.

Analysts have worried the market for the South San Francisco, Calif.-based company’s top-selling cancer drug Avastin was becoming saturated even as the company sought approval for new uses.

Sales growth slowed for Avastin the past several quarters. Sales reached $603 million during the fourth quarter, falling short of Wall Street expectation of $616 million. Its prospects grew cloudier last month when a Food and Drug Administration panel’s decided not to recommend the drug for expanded use in breast-cancer patients.

A final FDA vote on whether to treat breast cancer patients with Avastin alongside chemotherapy is slated for February. The agency does not have to follow the advice of its panel, though it usually does.

“We continue to believe strongly that the testing of Avastin and metastatic breast cancer was a successful study,” said Susan Desmond-Hellmann, Genentech’s president of product development.

In 2008, the company said it expects profit, excluding charges, between $3.30 and $3.45 per share. Analysts expected earnings of $3.37 per share for the year.

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