Genzyme Corp.
(GENZ) reports fourth-quarter results on February 17, with the current Zacks Consensus Estimate at 20 cents per share. Recent revisions to the quarterly estimate have been in both directions, with a very modest upward (positive) bias. Of the 12 estimates for the fourth quarter, three have been raised while two have been lowered in the last 30 days. On balance, the estimate is up from 18 cents per share in the last 30 days.

If quarterly results come inline with expectations, as is most likely given its recent track record, fourth-quarter 2009 EPS would be 52.4% below the year-earlier level. The year-over-year drop is due to the lingering effects of operational issues at the company’s Allston Landing, Massachusetts facility. For the full-year 2009, the current Zacks Consensus Estimate is $1.74, only modestly up in the last 30 days. Genzyme earned $1.95 a share in 2008.

In terms of earnings surprises, Genzyme reported in-line results in the third quarter but delivered a 6.9% negative surprise in the second quarter of 2009, with the four-quarter average being a negative 1.5%. We see no upgrade potential to the upcoming quarter, with earnings coming inline with the Zacks Consensus Estimate.

Genzyme’s earnings outlook brightens significantly going forward, with the current Zacks Consensus Estimate for 2010 at $3.05 a share, a roughly 77% year-over-year growth. This is due to the resolution of the company’s recent operational challenges. Genzyme spent a major part of 2009 dealing with contamination issues at its manufacturing plant at Allston Landing. In June 2009, the company had to temporarily halt production at this manufacturing plant due to contamination issues. The temporary suspension of production hampered the company’s supply schedule for lead product Cerezyme as well as Fabrazyme. However, we are pleased to see that Genzyme is working on emerging from the impact of its manufacturing issues. The company has not only started supplying new lots of Cerezyme and Fabrazyme, it has also hired a new head of Quality Control.

For 2010, we have seen four estimate revisions in the last 30 days, out of the 12 for the year. There is no agreement among them, with an equal number going in either direction. In terms of magnitude, however, there is a positive trend, though very modest at this stage. This positive trend is evident from the roughly 3-cents increase in the estimate over the last 30 days. While Genzyme may have to face additional challenges before it is able to go back to a normal production and supply schedule, we believe the worst is over. We expect the market’s focus to shift to the company’s emerging pipeline and updates regarding the supply schedule of Cerezyme and Fabrazyme. The recurrence of manufacturing issues would be a major setback for the stock. The current Zacks #5 Rank (‘strong sell’) reflects the company’s continuing near-term challenges. However, our recent upgrade of the stock’s long-term recommendation to Neutral is based on the improving long-term outlook.

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