All we hear about anymore is the novel coronavirus. The virus has caused sudden economic shocks across the world, derailing almost every stock in the process. However, Regeneron (NASDAQ:REGN), Gilead Sciences (NASDAQ:GILD) and a handful of other biotech stocks have withstood the selling pressure. More than that, Regeneron stock is on the cusp of a breakout to new highs.
Regeneron’s shares reached a new 52-week high today, while the S&P 500 is about 15% off its 12-month high. Similarly, its shares are up 26.6% over the past 12 months, while the index is down about 2.5% in the same time frame.
Clearly, the stock has been outperforming, but there are several reasons why bulls may want to keep betting on Regeneron stock. A look at the company’s financials leaves me very confident in the company.
The Financials
I look at companies’ cash flow statements first. More or less, I want to know if the company is generating positive cash flows. Regeneron is doing that. In fiscal 2019, the company free cash flow jumped 11% to $2 billion. In 2017, the company’s free cash flow was $1.03 billion.
Next I gravitate to companies’ balance sheet. I want to know if they can easily cover their short-term expenses, even in the event of a sudden downturn. Regeneron passes this test as well.
As of the end of last year, it had $3.2 billion of cash, while its current assets total $7.7 billion. That compares to current liabilities of just $2.1 billion.
Further, its total assets of $14.8 billion are far above its total liabilities of just $3.7 billion, as Regeneron carries no long-term debt. In other words, its balance sheet is incredibly robust, giving the company a ton of flexibility. That’s important during uncertain times. The company’s strong balance sheet also eases investors’ concern about its obligations.
Lastly, I get to the income statement, where I examine companies’ sales growth and profit margins.
In 2019, Regeneron’s sales came in at $7.86 billion, up from $6.7 billion in 2018. However, its rising R&D costs caused its net income to contract from $2.4 billion in 2018 to $2.1 billion in 2019. That’s not an ideal development. But we are looking forward, not backward.
Analysts, on average, expect the company to deliver 8.6% revenue growth in 2020 and 9% top-line growth in 2021. On the earnings front, they expect its earnings per share to increase 10.6% this year to $27.29 before jumping another 11.4% in 2021.
Regeneron stock trades at 18.7 times analysts’ average 2020 EPS estimate. That’s a fairly cheap valuation, given all of its positive attributes at this point.
Trading Regeneron Stock
The stock’s charts look as good as any other name at this point. Regeneron’s shares continue to plow higher and are now flirting with an even larger breakout.
In early February, Regeneron stock burst through a $410 resistance, point, pushing up into the very wide range of $425 to $500. The stock is currently near a resistance point of $525.
It will seem like a big move but, technically speaking, $575 is in play if Regeneron can break out over this area. That zone was resistance in 2015, and the stock hasn’t reached that point in almost five years.
On the downside, a move back below $500 puts the bottom of the recent range, near $425, back in play.
Coronavirus Potential
Developing a successful coronavirus treatment would be a positive catalyst for the shares, although investors should not buy Regeneron stock on that hope.
Instead, they should be focused on the company’s cash flows, its strong balance sheet and expectations for solid growth over the next two years. For those who also keep tabs on technicals, remember how well the shares have been trading.
Those are the important factors to keep in mind. However, if the company develops a treatment or vaccine for coronavirus, the shares would jump significantly. Buying Regeneron is almost like getting stock and a small call option, i.e. the coronavirus “kicker.”
If the company fails to develop such a treatment, the stock probably won;t drop too much. In that event, the shares will likely remain in their current range. But a successful treatment could send the shares into breakout territory.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
