Pharmaceutical company Biogen Inc. (BIIB) is one the leading companies in the biopharma space, with a market capitalization of $40.77 billion. The stock has gained 11.6% year-to-date, following its 19.5% decline over the past year.
BIIB has been gaining momentum owing to its breakthrough research in multiple spheres. However, the company’s bleak growth outlook is a cause for concern.
Here’s what could shape BIIB’s performance in the near term:
The COVID-19 pandemic has revealed the research and innovative capacity of pharmaceutical companies worldwide, given the timeframe within which companies were able to develop effective coronavirus vaccines. With spending on research and development nearing all-time highs, pharmaceutical companies are expected to launch high-quality therapies across a wide spectrum of maladies.
Spending on medicines is expected to amount to $1.5 trillion this year, representing a 33% rise from 2016. Annual spending on medicine is expected to rise at a rate of 4%-7% over the next five years. The United States, which is the largest pharmaceutical market in the world, is expected to account for 53% of the forecasted growth. Consequently, pharmaceutical companies are expected to register significant gains over the long run.
Bleak Growth Outlook
A $5.04 consensus EPS estimate for the most recent quarter, ended March 2021, represents a 44.9% decline year-over-year. The Street expects BIIB’s EPS to decline 53.5% in the current quarter (ending June 2021), 45.4% in the current year, and at a rate of 10.2% per annum over the next five years.
BIIB’s quarterly revenues are expected to decline 24.9% year-over-year to $2.65 billion in the about-to-be-reported quarter, and 23.6% to $2.62 billion in the second quarter. In addition, analysts expect the company’s revenues to decline 21.4% year-over-year to $10.57 billion in its fiscal year 2021.
Trading at a Discounted Valuation
In terms of non-GAAP forward P/E, BIIB is currently trading at 15x, 38.8% higher than the industry average 24.5x. The stock’s forward price/sales and price/cash flow multiples of 3.90 and 11.25, respectively, are significantly lower than the industry averages of 6.97 and 19.2.
BIIB’s 10.73 forward EV/EBITDA ratio is 37.8% lower than the industry average 17.24.
Consensus Rating and Price Target Indicate Potential Upside
Of the 22 Wall Street analysts that rated the stock, 10 rated it Buy, nine rated it Hold and three rated it Sell. Analysts expect the stock to hit a median price target of $307.79 within the next 12 months, representing a potential 15.2% upside. The price targets range from a low $200 to a high $458.
POWR Ratings Reflect Uncertainty
BIIB has an overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value, F for Growth, and D for Sentiment. The company’s lower-than-industry valuation multiples account for the Value grade. BIIB’s revenues and EPS declined 6.5% and 21.1%, respectively, year-over-year, in sync with the company’s Growth grade. Also, the company’s bleak growth trajectory justifies the Sentiment grade.
Click here to view the top-rated stocks in the Biotech industry.
Given the company’s bleak financial growth prospects, we think investors should wait until BIIB announces concrete results from its research and/or commercially launched drug candidates before investing in the stock.
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BIIB shares were trading at $268.88 per share on Wednesday afternoon, down $4.32 (-1.58%). Year-to-date, BIIB has gained 9.81%, versus a 11.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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