Jefferies Thinks 3 Red-Hot Biotech Stocks Can Beat Q1 Estimates

By Lee Jackson Updated Jan 12, 1:09PM EST · Published Apr 10, 9:50AM EDT

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Jefferies Thinks 3 Red-Hot Biotech Stocks Can Beat Q1 Estimates — © Thinkstock

[cnxvideo id=”509734″ placement=”ros”]If any industry has been under pressure over the past year or so, it has been biotechnology. While there are some positives for the industry, it still faces some definite headwinds as well. Weak prescription data and long-term competitive/pricing constraints are somewhat balanced out with some newfound industry momentum and more positive news flow.

A massive new Jefferies research report reminds investors that as a rule the first quarter is traditionally slower for the biotechs, and the report noted:

First quarter tends to be soft and based on our prescription analysis, we see some modest misses across the boards but nothing that would dampen near-term enthusiasm, especially given a recent string of positive data points and product approvals.

The analysts feel that three top companies in their coverage universe, two of which are rated Buy, can beat the current top-line estimates.

Gilead Sciences

This stock trades at an astounding multiple of less than seven times estimated 2017 estimated profits. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific. Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

The stock was hit on 2017 guidance, which was much lower than expected on diminishing hepatitis C revenue. However, the analyst is positive on the company’s HIV franchise going forward. It also cited new drug filings this year as potential catalysts

Jefferies thinks that a spin-off of the hepatitis C silo of the business is entirely possible, as the declining predictable revenues have weighed on the company’s overall valuation. While not a given, a transaction could improve long-term growth and improve the positive impact of a future acquisition or pipeline success.

Investors receive a 3.12% dividend. The Jefferies price target for the stock is $82, and the Wall Street consensus figure is $79.06. Shares closed Friday at $66.58.

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Incyte

This top mid-cap is rumored to be in the sights of a larger biotech company. Incyte Corp. (NASDAQ: INCY) has a current validated approach in hematology-oncology, and there’s reason to believe the three wholly owned clinical-stage assets the company has could drive several billion in revenue, something important for an acquiring company looking to acquire assets. Many on Wall Street are bullish on the company’s rich pipeline of small molecule therapies in all stages of development, and they see the company as a key player in the cancer space.

Incyte focuses on the discovery, development and commercialization of proprietary therapeutics in oncology. It offers Jakafi for the treatment of myelofibrosis and polycythemia vera cancers. Its clinical stage products include ruxolitinib cream, which is in Phase 2 clinical trial for the treatment of alopecia areata; and INCB52793, which is in Phase 1/2 for the treatment of advanced malignancies. The company’s clinical stage products also comprise baricitinib, which is in Phase 3 trial for rheumatoid arthritis, as well as a completed Phase 2 trial for psoriasis and diabetic nephropathy.

Jefferies has a $165 price target, and the consensus price objective is $149. Shares ended Friday at $110.84.

Regeneron Pharmaceuticals

Jefferies only rates this stock as a Hold but still think it can beat the first-quarter top-line estimates. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. The company is focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.

Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.

The company recently reported that evinacumab has received FDA breakthrough therapy designation for homozygous familial hypercholesterolemia. Regeneron also reported positive interim Phase 2 results for evinacumab in such patients, and it is currently planning a Phase 3 trial for Eikon.

The $385 Jefferies price target is less than the consensus target of $423.23. Shares closed Friday at $380.55.

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These three top companies could get an outstanding lift should they come in with revenues above current estimates. All three stocks are best suited for aggressive growth accounts with a large degree of risk tolerance.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.