How Biogen Inc (BIIB) Stock Could Gain Another 25%

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biogen - How Biogen Inc (BIIB) Stock Could Gain Another 25%

Source: Biogen via YouTube

Biogen stock, which closed Friday at $264.67, has declined 5.6% year-to-date, while falling 14.6% over the last six months. If you’ve held BIIB stock over the past year, you’ve broken even at best.

But Biogen, unlike some of its peers, trades at an attractive valuation of just 12.6 times fiscal 2017 earnings-per-share estimates of $20.98. And that price-to-earnings ratio drops to 11.7 based on fiscal 2018 estimates of $22.48.

Not only is BIIB stock cheap relative to the S&P 500 index, which is priced at a forward P/E of 19, the shares also trade at a significant discount SPDR S&P Biotech (ETF) (NASDAQ:XBI) and the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), which are both priced at a P/E of 19.5. Assuming Biogen stock was priced, say, at just 16 times forward estimates, which would still be a three-point discount, the stock would be valued at around $335, or near its 52-week high.

Understanding BIIB Stock’s Potential

Could this be what analysts are thinking given the company’s consensus price target of $331? It could be. Then why are the shares so cheaply priced? Obviously, the rate at which the industry has come under fire by regulators and politicians created some risk. In that regard, BIIB — despite some of its attractive fundamental qualities, including a solid balance sheet and high free cash flow — has a lot to answer to.

Last week, the company disclosed that it received a subpoena from the U.S. federal government related to price reporting and rebate payments for several of its drugs. How it reported drug prices to the government, its rebate payments and co-pay assistance programs for its drugs Avonex, Plegridy and Tecfidera, has been a subject of intrigue by federal regulators.

On Jan. 1,  the company announced that it is increasing the prices of Avonex, Plegridy and Tecfidera by 8%. Notably, its drug Spinraza, used to treat spinal muscular atrophy, also faced criticism given its new price of $125,000 per dose. Not surprisingly, Biogen has taken — and continues to take — tons of backlash.

All told, investors have a tough task of separating these issues, much of which are PR-related, to make a bull case for BIIB stock. Solely from a valuation perspective, Biogen stock — at roughly 12 times forward estimates — looks like a no-brainer. And with a few lucky breaks. BIIB stock should reach $331 to $350 in 2017, delivering 25% to 32% returns.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/biogen-inc-biib-stock-gain-another-25/.

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