Wilmington, Delaware-based biotech company Incyte Corporation’s (INCY) drug baricitinib, which is used for treating arthritis, has shown promise in COVID-19 related treatment, helping the  stock to gain 6.6% over the past three months. The company was founded in 1991.

The company’s dedication to developing its primary product pipeline for cancer and the treatment of rare diseases has allowed the stock to gain 18.7% over the past year. Over the past month, the stock gained 5.1% on reports citing the success of its ruxolitinib in the treatment of COVID-19 associated cytokine storm.

Here is what we think could shape the performance of INCY in the near term:

Effectiveness of INCY Drugs for COVID-19

On November 19 last year, the U.S. FDA gave emergency use authorization for baricitinib to be used for treating COVID-19 patients, along with remdesivir. Adaptive COVID-19 treatment trial (ACTT-2) results have shown that these two drugs in used in proportion reduce the median recovery time of COVID patients. We expect INCY to witness a rise in its sales based on this this authorization, given the U.S.’ high coronavirus infection rate.

And because a cytokine storm has emerged as a major side effect of coronavirus, INCY’s ruxolitinib sales should also rise significantly in the upcoming months.

Reasonable Valuation

In terms of forward price/sales, INCY is currently trading at 7.80x, 18% lower than the industry average of 9.51x. The stock’s forward EV/sales ratio of 7.14x is 17.6% lower than the industry average of 8.67x.

Impressive Historical and Expected Financials

INCY’s revenues have increased at a CAGR of 20.1% over the past three years. Its total assets rose at a CAGR of 11.7% over the past three years, while its tangible book value grew at a CAGR of 14.8% over this period. Its third quarter (ended September 30, 2020), revenues increased 12.5% year-over-year.

Analysts expect the company to maintain its growth trajectory in the near future. A consensus EPS estimate of $0.68 for the quarter ending March 31, 2021 represents  a 123.8% improvement year-over-year. Its EPS is expected to rise 652.4% in the current year, and at a rate of 20.9% per annum over the next five years. Analysts expect INCY’s revenues to rise 12.1% in the current quarter, and 17.7% in fiscal 2021.

Analyst Price Target and Ratings Reflect Potential Upside

Currently trading at $90.24, analysts expect INCY to hit $105.69 in the near term, representing  a potential upside of 16.2%. The stock has an average broker rating of 1.6, indicating favorable analyst sentiment.

Favorable POWR Ratings

INCY has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system evaluates each stock on a total of eight  different categories. INCY has a grade of B for Value, which is justified given its relative undervaluation. The stock has a grade of B for Quality. This is consistent with its trailing 12-month gross profit margin of 7.17% versus the industry average of 55.91%.

To check additional INCY POWR Ratings for Growth, Sentiment, Stability and Momentum, click here.

In the 478-stock Biotech industry, INCY is currently ranked #21. There are several other stocks in this industry with an overall grade of A or B. Click here to see them.

Bottom Line

INCY is expected to grow significantly in the near term because its product pipeline involves COVID-19 treatments. Surging cases and new strains of the virus emerging around  the world and INCY’s fundamental strength should drive the stock higher in the upcoming months.

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INCY shares were unchanged in after-hours trading Monday. Year-to-date, INCY has gained 7.63%, versus a 4.45% 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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