Thursday, November 5, 2009

Bookkeeping: Closing Myriad Genetics (MYGN) as Earnings Fail to Provide a Charge

We restarted a position in Myriad Genetics (MYGN) as a long term "growth at good value" play about 6 weeks ago, despite a horrid technical condition on the chart.  Since then the stock has just sort of hung around and done nothing, trading in a very tight range.  I was hoping this quarter's earnings report would provide some "oomph" but it appears we have nothing.  No need to wait around at this point as the chart looks no better than it did 6 weeks ago and now our catalyst to change that condition has come and gone. At this moment, the stock is simply in a slow downturn and is a better catch for the bears than for bulls.

I am selling our 1% exposure in the $24.40s for about a 5% loss on the remaining batch we owned.  We traded around this position in small pieces during the past month but any gains or losses were inconsequential.

This is just one of those names I am confused on; the market runs up broken companies with shrinking revenue in stagnant industries on hope they can turn around the business as the economy recovers... and is happy to hand them 50, 60, 70x PE ratios.  Then a company like Myriad who has solid revenue growth (>20%) and profits up year over year is abandoned.  While they did miss "expectations" that is just a Wall Street game - their core business shows solid growth metrics but apparently that means nothing if you don't beat analysts guestimates. And they re-invested in themselves with a large R&D surge, another no-no on Wall Street.   Much better to forgo research and development costs so as to "beat the number" - short term thinking over long.  Cramerica style.

A look at their earnings from Wednesday:
  • Molecular diagnostics company Myriad Genetics Inc. said its fiscal first-quarter profit doubled on higher revenue from cancer tests.  Its molecular diagnostics business sells a range of tests aimed at assessing risks for breast, ovarian, colon, and skin cancer.
  • Revenue rose 22 percent to $85.1 million from $70 million.
  • The company earned $30.4 million, or 31 cents per share, in thew three months ended Sept. 30, up from $14.5 million, or 15 cents per share, a year ago.  (that's a bit deceiving)  The company's year-ago period included a loss of $10.1 million from discontinued operations of its former research and drug development businesses, 
  • Analysts on average were expecting a profit of 34 cents a share, before items, on revenue of $88.1 million.
  • For the quarter, research and development expense jumped 30 percent, while operating expenses rose 19 percent, the company said.
  • "While the weak economic environment continued to restrain overall revenue growth compared to the prior year, the company has begun to see stronger demand return for its products during the latter half of September and continuing through October as a result of its ongoing increased sales and marketing efforts," the company said in a statement after the markets closed Tuesday.
  • Chief Executive Peter Meldrum said though Myriad's first-quarter revenue was affected by a weak economy, the company is still "comfortable" with analysts' consensus revenue and profit estimates for fiscal 2010.

No position

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