High-priced big-cap biotechs are having a great year this year and you may be wondering whether two biotech leaders, Regeneron and Celgene , still have room to run.
Both stocks have outpaced the S&P 500 handily thanks to positive news including expanded labels and positive trial results for high profile drugs in their pipelines. Both have also climbed more than the broader S&P Biotech ETF, too.
But, just because shares in these companies have rallied doesn't mean they'll continue to head higher. It is important to consider their earnings growth and earnings consistency, as well as their valuation, before jumping in and buying.
Regeneron has increased its research and development spending and underdelivered on analysts' earnings estimates the past two quarters as a result. That's prompting analysts to curb earnings per share forecasts for next year to $5.55 from $5.71 just 90 days ago. On the bright side, the Street did lift those expectations from $5.46 a week ago, and earnings are expected to climb nicely through 2016.
Unlike Regeneron, Celgene has overdelivered on earnings in each of the past four quarters. That encouraged analysts to lift earnings forecasts for next year to $7.23 from $6.96 90 days ago. Their enthusiasm doesn't wane as you looking further out, either. They think Celgene's earnings could top $11 over the next three fiscal years.
While both companies are expected to see impressive earnings growth over the coming years, Celgene appears more attractively priced.
Regeneron is trading a seemingly rich 55 times next year's earnings and more than 38 times its expected earnings in 2016. Celgene is trading 25 times next year's forecasts and just 13 times estimates for 2016.
Or, looking at it differently, investors are currently paying significantly less for each dollar of Celgene's compared to Regeneron's expected sales next year.
The Foolish Final Take
Both Regeneron and Celgene have blockbuster drugs in Eylea and Revlimid, respectively. And both have rich pipeline opportunities. Regeneron and its partner Sanofi just reported positive results for phase 3 drug alirocumab for lowering bad cholesterol. Celgene's Apremilast and Abraxane have plenty of opportunity for label expansion thanks to a slate of autoimmune and oncology trials. But, investors are currently pricing Regeneron's future opportunity more expensively than Celgene's, suggesting you may want to focus more on Celgene until either Regeneron's price falls or analyst earnings estimates climb.
Two other revolutionary biotech companies to watch
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In The Motley Fool's brand-new FREE report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.
The article Is Regeneron a Better Buy Than Celgene? originally appeared on Fool.com.Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC, an institutional research firm serving portfolio managers, and Gundalow Advisors, LLC, an advisory serving high net worth investors. E.B. Capital's clients may or may not have positions in the companies mentioned. Gundalow's clients do not own shares in the stocks mentioned. The Motley Fool recommends Celgene. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.