Sometimes market volatility and outside shocks create a rift between market prices and real value. That may currently be the case in the largest stocks in the biotech sector within health care if RBC Capital Markets is correct in its outlook.
Is it possible that the post-Brexit trading and other sector malaise in the biotech sector is valuing the companies so low that their future drug pipelines are being valued at almost zero?
RBC’s Michael Yee and his team believe that the post-Brexit volatility and other value-destroying risks have effectively valued some of the major biotech leaders’ future drug pipelines at almost zero. That would mean that the biotechs are valued just for existing drug franchises and their respective earnings and revenues.
When investors hear things like this, it is understandable that they may want to load up. It is important to understand exactly what the RBC team is highlighting and expecting.
RBC countered that notion and was quick to say that this is not calling a bottom. Yee even said he expects that biotech valuations will likely remain suppressed for the rest of 2016.
The problem here is that volatility and valuation discounting like this rarely disappears overnight. There is the ongoing risk of the political pendulum on drug prices and negotiation for future pricing. That could all keep a cloud over the sector, so any investors thinking they are getting a free call option or warrant on the top biotech stocks better understand that this could take quite some time to pan out.
24/7 Wall St. also added in trading data and consensus data from Thomson First Call to show what sort of growth may be seen ahead.
Amgen Inc. (NASDAQ: AMGN) was given a no-pipeline valuation range of $135.00 to $145.00 by RBC, versus a $146.00 current share price.
Amgen’s market cap is $110 billion, and it has a consensus analyst price target of $185.31 and its 52-week range is $130.09 to $181.81.
Amgen’s revenue was $21.66 billion in 2015 with earnings at $10.38 per share. Its consensus analyst targets for 2017 are $ 23.3 billion in revenues and $12.15 in earnings per share.
Biogen Inc. (NASDAQ: BIIB) was given a no-pipeline valuation of roughly $225.00, versus a current share price of $228.00.
The company, which was still recently called Biogen Idec, has a consensus analyst price target of $336.33; and its 52-week range is $223.02 to $412.24. Its market cap is now just $50 billion after having fallen so much.
Biogen’s 2015 revenue was $10.76 billion, with earnings at $17.01 per share. The consensus analyst estimates for 2017 are $11.85 billion in revenues and $20.14 in earnings per share.