Rayno Biobeat #2…Good Value in Large Cap Biopharmaceuticals- Update-1

Which Large Cap Biopharma Stocks Have the Best Value?

But revenue growth is slowing so M&A must pick up.

Drug stocks have gone through a severe correction and healthcare is one of the worse sectors YTD. Although the key indicators are still sketchy, now is the time to look for value among several top large cap biopharma stocks in the sector. We want companies who have strong R&D pipelines yet are not too pricey on a PEG or P/S basis.This list of well-known stocks is a good place to start in comparison to mega-cap Merck (MRK) which has recently begun a transition to innovative biopharma product growth.

Merck (MRK) has become a major biotech player with their Keytruda lung cancer drug, a strong Phase II,III pipeline and 6% Q3 sales growth. MRK stock leads the group up 11.36% YTD despite the October downdraft. But EPS lags this year and the PEG is a high 4.74. Gross Margins are 77.3% but sales growth for next year is hard to predict.

Abbvie (ABBV) stock was very strong in 2016 and less volatile until the October sector downdraft. Nonetheless the stock is down only 5.4% YTD and pays a 4.57% dividend. EPS Q/Q is a strong 30.9% but pricing concerns over Humira held the stock in check. Analysts expect revenue growth for next year in the 10% range.

Amgen (AMGN) looks like good value on paper with forward PE of 10.79, EPS growth is 35.2% and the balance sheet is strong. But pricing concerns with Enbrel led the biotech sector down.Amgen has grown their major acquisitions so look for another one as growth lags.

Bristol-Myers (BMY) is a former high flier in immuno-oncology but the stock was pummeled by better results from Merck’s Keytruda drug compared to Opdivio. The stock was very overvalued but is looking better at its current depressed valuation and strong Q3 sales growth with a good pipeline. But sales growth estimates for 2017 averages only 3.7%.Gross margins are strong at 75.7%.Technicals are trying to hold the low at $50.

Gilead Sciences (GILD) is the worse performing stock in the group because of declining sales growth in HCv and HIVe products where they are in a leadership position.The Company has big potential for a major acquisition with  $25B+ cash on its balance sheet, a P/S of 3.06 and a PE of 6.02. Despite the obvious value sales growth estimates for 2017 are still negative.

Celgene (CELG) has a compelling product pipeline with 19 Phase 3 studies in cancer, MS and inflammatory diseases.  Celgene is one of the most favorite large cap biotech stocks by analysts with a 1.8 rating. Sales growth by quarter is an impressive 27.8% and 20.6% over the past 5 years. Sales growth estimates for 2017 are an optimistic 16.8%.

All of these stocks are candidates for bottom fishing.

The XLV at $66.40 should bottom at $65 support level down 7.7% YTD. Bottom fishers looking for a rally in depressed healthcare stocks can start here. The XLV high was $75 and the current PE is 5.15 with a yield of 1.66%.

Selected Large Cap Biopharma Companies

Updated after Trump Rally on 11/10: IBB up 30 Points in just two days!

Ticker Price MarketCap P/S PEG Q/Q Rev %YTD Div.  Price
11/5 $B %  Stock  11/10
Abbvie ABBV 56.04 91.81 3.72 1.03 17.8 -5.4 4.57  64
Amgen AMGN 135.4 98.97 4.52 1.75 5.9 -16.6 2.95  151.57
BristolM BMY 51.01 85.25 4.86 1.75 17 -25.89 2.98  56.66
Celgene CELG 103.44 80.71 7.89 1.99 20.9 -13.63 n/a  121
GileadSci GILD 72.43 72.43 2.99 n/a -5.7 -28.4 2.6  77.84
Merck MRK 58.82 164.26 4.2 -4.42 4.6 11.36 3.13  65
IBB 251.7 -25.6 0.17  289.78
XLV 66.48 -7.71 1.66  71.56

Disclosure long ABBV,BMY, GILD.

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