How Overvalued Are The Biggest Biotechs? (AMGN, BIIB, GILD, ALXN)
Dec 20th 2012 2:57PM
The largest biotech stocks have been great performers in 2012. The question is whether that can be sustained in 2013. If Wall Street analysts are correct, biotech and biohealth investors are going to have to swoop down into the $1 billion to $5 billion players to get the biggest movers in 2013. Wall Street thinks that these three largest biotechs are simply overvalued when you consider the upside versus the risk.
Those big gains from Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB) and Gilead Sciences Inc. (NASDAQ: GILD) created a whopping $60 billion in combined shareholder gains in 2012.
Amgen Inc. (NASDAQ: AMGN) is worth a whopping $68 billion and with shares up at about $88.50 the stock is up 40% so far in 2012. The 52-week trading range is $62.60 to $90.81 and the consensus price target here is $93.73. If the analysts are correct then there is only about 6% implied upside. That might be fine for a utility stock but that is not enough upside to chase for most investors taking on the risks of a drug company or a biotech. We would note that the highest analyst target is $108.00 on Amgen, so there are some higher targets.
Biogen Idec Inc. (NASDAQ: BIIB) shares now trade at $151.50 with a market value of almost $36 billion and the stock is up over 37% year to date. The MS leader's 52-week range is $109.22 to $157.18 and the consensus price target is $158.50. This implies less than 5% upside and the target is also above the 52-week high, again not leaving enough upside to chase in a biotech where there is more implied risk than in traditional stocks.
Gilead Sciences Inc. (NASDAQ: GILD) trades at $73.75 with a market value of more than $55 billion. This AIDS drug leader has been a screamer with its stock up about 80% so far in 2012. Gilead traded in a range of $38.42 to $77.12, and the consensus price target of $82.70 implies upside of more than 12%. We are not going to bash 12% upside because it is still attractive, but this is still on the heels of one massive rally in 2012.
This gets very interesting if you tally all of these gains up, these three added something close to $60 billion in combined market value in 2012 alone. Now average these three implied upside targets out and you get only about 7% implied upside.
So, where is the value in biotech? Simple… 24/7 Wall St. screened and evaluated the entire biotech sector with an implied 20% upside or more. Some of those are even expected to rise 50% and higher and they have market capitalization rates of $1 billion to $5 billion.
If we were running that same screen today, technically Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) would have made the list even if its market cap is more than $18 billion. At $96.30, its 52-week range is $67.07 to $119.54. The consensus price target of $118.33 implied upside of close to 23%.
We would warn that analysts are likely to raise the price target objectives on some of these larger biotechs after the start of 2013. Still, as of now the easy money looks like it has been made. Should any investor chase a biotech for only about 7% returns? Our take is that any biotech or pharma company can fall by more than 7% in any one session even if the news is nothing more than a competitor making a breakthrough that could challenge a leading drug.
We would look at the list of biotech upside stocks for 2013 rather than in the three largest biotechs by market cap.
JON C. OGG
Filed under: 24/7 Wall St. Wire, Biotech, Drug companies, Healthcare, Value Investing Tagged: ALXN, AMGN, BIIB, featured, GILD