Analysts' Choice: Biogen Shares Not Sick As Peers

11/7/2016


  Recent Price
$277
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
14
  Shares (millions)
219
  Long-Term Debt As % Of Capital
36%
  52-Week Price Range
$333.65 - $223.02

S&P 1500 health-care stocks have averaged a loss of 4% this year, worst among the index's sectors. No health-care industry has performed worse in 2016 than biotechnology, which has posted a 23% average loss.

With a 38% share of the global market for multiple sclerosis drugs, Biogen ($277; BIIB) represents one of the best spots for investors in a rough neighborhood. Its shares have been spared from the worst of the biotech sell-off, though they have still lost 9% on the year.

Things may be turning around for the stock, which topped analyst estimates for both earnings per share and revenue in the September quarter. Biogen, scoring above 80 for both sector-specific ranks, is a Buy and a Long-Term Buy.

Business breakdown

The stock earns consistently high Quadrix scores, its Overall rank exceeding 85 in each of the past 13 months. Investors have grown accustomed to steady operating growth as well. Annual per-share profits have grown by double-digits in 11 straight years, while revenue growth has exceeded 6% in 21 straight years. Operating cash flow and free cash flow have risen in each of the past six years, and return on equity is marching higher.

Biogen is on track to maintain its growth trajectory in 2016 for per-share profits (up 22% in the first nine months of the year), revenue (up 8%), operating cash flow (up 10%), and free cash flow (up 13%). Biogen has a less-steady track record for annual profit margins, though operating margin has now expanded in 10 straight quarters.

Multiple sclerosis drugs generate about 80% of Biogen's revenue. Tecfidera, its biggest drug (35% of sales), has driven recent growth, with sales up 12% for the nine months ended September. Tecfidera enjoys a combination of higher prices and strong volumes.

Biogen's per-share profits are projected to rise just 3% in 2017, well below the industry average of 22%. But analyst profit estimates have crept higher in the past 60 days for Biogen, while declining for the majority of biotech stocks.

Conclusion

Few stocks in our research universe look cheaper relative to historical norms. Biogen trades at 14 times trailing earnings, its lowest level since 2011, 47% below its five-year median of 27 and 16% below the industry median. If Biogen meets the 2017 consensus profit estimate of $20.77 and its trailing P/E rises to 17, the shares would rally 27% over the next 15 months.

Biogen's cheap valuation reportedly attracted takeover interest from potential suitors Merck ($59; MRK) and Allergan ($198; AGN) this summer. Drugmakers are desperate for growth, though any deal for a company of Biogen's size would draw close scrutiny from regulators who have shown a willingness to block big mergers.

For now, Biogen is taking advantage of its attractive valuation by opportunistically ramping stock buybacks, shrinking the share count 6% in the past year. Biogen increased its stock-repurchase program by $5 billion in July.

An annual report for Biogen Inc. can be obtained at 225 Binney St., Cambridge, MA 02142; (617) 679-2000; www.biogen.com.

BIOGEN
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '16
5.19
vs.
4.48
6%
333.65
-
240.07
18 - 13
Jun '16
5.21
vs.
4.22
12%
292.69
-
223.02
16 - 12
Mar '16
4.79
vs.
3.82
7%
301.02
-
242.07
18 - 14
Dec '15
4.50
vs.
4.09
8%
311.65
-
254.00
19 - 15
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
10.76
17.01
0.00
480.18
-
254.00
28 - 15
2014
9.70
13.83
0.00
361.93
-
270.62
26 - 20
2013
6.93
8.96
0.00
298.82
-
139.72
33 - 16
2012
5.52
6.53
0.00
157.18
-
111.44
24 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
88
56
79
97
86
55
31

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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