ONXX Onyx Pharmaceuticals, Inc. (MM)

The biotech space is likely to find greater focus in the wake Amgen’s (AMGN) purchase of ONXY Pharmaceuticals (ONXX).   Investors looking for strong growth at a reasonable price in the biotech sector may want to buy into the Biogen Idec (BIIB) story.  This Zacks Rank #1 (Strong Buy) is experiencing robust upward revisions to earnings estimates and is priced at an attractive valuation.   

Earnings trend:

Within the past 30 days, earnings estimates for each of 2013 and 2014 have been revised up five times, while no earnings estimates have been cut. The graphic displays the trend in earnings revisions. 

The Zacks Earnings per share Consensus Estimates for 2013 and 2014 have been lifted 9.3% to $8.75 and 17.0% to $11.58 respectively over the past 30 days.  2014 profits are expected to rise 32.0% year over year.

Sales growth is strong and expected to rise 24% in 2013 and another 18.7% in 2014.

The stock is inexpensive:

Biogen Idec is priced with a PEG ratio (earnings per share divided by earnings growth) of 0.95.  The PEG ratio is not only below 1.0, but under the ten year median value of 1.38. Investors are not paying a premium for the growth outlook and the stock is trading at a discount to its historical valuation level.

Further, it is trading about 20 times forward 12 month earnings, which is about in line with the ten year median. However, the Zacks Drug sector is trading at 16.6 times forward 12 month earnings compared to its median of 14.7.  On a relative 12 month forward PE basis, Biogen Idec looks cheap compared to its pharmacy peers.

The pipeline is strong:

Biogen Idec has a healthy pipeline of products to support the favorable earnings picture.   It has three drugs, ALPROLIX (Hemophilia B), ELOCTATE (Hemophilia A), and PLEGRIDY (Multiple Sclerosis) which have moved past Phase III and have been filed with the FDA for approval.  It also has three drugs in Phase III focused on forms of Leukemia and Non-Hodgkin’s Lymphoma and Multiple Sclerosis, and three drugs in Phase II for treatment of Lupus Nephritis, Optic Neuritis, and Idiopathic Pulmonary Fibrosis.   

Fed taper not an issue:

With all the worry over the impact of Fed tapering and rising interest rates, Biogen Idec has shown a negative correlation to the 10 year treasury yield since 2000.  It is a stock which should not get caught up in the outlook for Fed policy.  The stock has tended to move higher while interest rates have declined over the ten year period.  The correlation between the 10 year treasury and Biogen Idec has been -0.68, but the correlation seems more linked to secular trends in the assets than economic conditions.  

Conclusion:

If you are looking for an opportunity in biotech, don’t pass over Biogen Idec.  Buy into the story of strong earnings growth at a reasonable price.

 
AMGEN INC (AMGN): Free Stock Analysis Report
 
BIOGEN IDEC INC (BIIB): Free Stock Analysis Report
 
ONYX PHARMA INC (ONXX): Free Stock Analysis Report
 
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