After falling from $393 per share early this year to a recent low of $284 per share, analysts have begun pounding the table again for Regeneron Pharmaceuticals Inc. (NASDAQ:REGN).
Regeneron is a biotech company known for drugs like Zaltrap, a cancer drug. The drugs and numbers have never interested me as much as its tools, like the Velocisuite, which gives researchers fast manipulation of mouse DNA, and TRAP — a general approach for developing enzyme blockers.
Regeneron has grown from sales of $2.1 billion in 2013 to $5.87 billion in 2017. Profitability is even better, with $1.2 billion hitting the net income line last year, and $478 million out of $1.5 billion in revenue making it to net income in the March quarter.
Fashion Over Results
With such steady profitable growth, you would expect a stock chart that goes straight up. Nope. Regeneron has traded as high as $577 per share in early 2015, when drugs were in fashion, and as low as $300 per share in May, when they were not.
Today, pharmaceuticals appear to be back in fashion. Suddenly, aggressive traders “must go long” Regeneron’s stock.
On June 7, REGN stock opened for trade at a price-earnings ratio of 25.5, not far from that of the general market. Regeneron’s market capitalization of $34 billion is less than six times last year’s sales of $5.9 billion, up from $4.9 billion a year earlier.
That’s not cheap, but it is fair. In the current market, however, fair looks cheap.
On a day when Berkshire Hathaway Inc. (NYSE:BRK.A) CEO Warren Buffett and JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon are all over TV railing against short-term thinking based on quarterly earnings estimates, the message to buy companies like Regeneron could not be clearer.
Reason to Buy REGN Stock
What I like about Regeneron is that it pays almost no attention to Wall Street, focusing instead on using its own tools and expanding their use. A recent deal with Zoetis Inc. (NYSE:ZTS) on veterinary treatments is typical.
Zoetis has a five-year license to use Regeneron’s VelocImmune antibody discovery system, and Regeneron will let Zoetis use some of the antibodies in its pipelines to treat things like osteoarthritis in dogs and cats. Those results will help focus Regeneron’s work using the same types of antibodies in humans.
Regeneron chairman Roy Vagelos, CEO Len Schleifer, and president George Yancopoulos are all scientists. They’re not marketers or number crunchers. They focus on fundamental technology, confident that new drugs will come out the back end. It’s a futuristic, “blue sky” approach based on scientific blocking-and-tackling.
Yancopoulos says the company will stay relevant by putting things like its Regeneron Genetics Center in the hands of young scientists hungry for discovery. It’s an academic-oriented method for corporate renewal. As the father of a young scientist myself, it speaks to me. It makes sense.
Bottom Line on REGN Stock
My advice is that you buy Regeneron, when it’s cheap, and hold it … it will become dear when fashion turns toward it.
Right now, REGN stock is still relatively cheap. Analysts are expecting just $1.58 billion in revenue for the June quarter, to be reported Aug. 2, and $4 .39 per share of earnings (about $472 million). Those are modest targets, which it will probably beat, because it usually does beat estimates.
This gives you about a month or so to load up on Regeneron shares. Then put it in the back of your portfolio and forget it. Don’t even think of selling until analysts start talking about biotech overheating. Then, sell enough to get back your investment, wait for the inevitable fall and buy some more.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he was long REGN stock.