Biotech stocks Gilead Sciences (GILD), Biogen (BIIB) and Celgene (CELG) are poised to beat some aspects of their fourth-quarter earnings, an analyst predicted Friday.
And they won’t be alone, Leerink analyst Geoffrey Porges wrote in a note to clients.
Porges acknowledged political pressure has kept drug-price increases to a minimum in recent years. Still, the fourth quarter featured volume increases for new products and a low single-digit price increase across the cadre of large-cap biotech stocks.
“We estimate that the companies in our large-cap biotechnology universe should report mixed revenue results skewed toward beats,” Porges said. “And all of them will report earnings beats of consensus estimates.”
That should help valuations rise from a trough, he said. Biotech stocks have risen around 12% this month, including a fractional lift on the stock market today. But they struggled at the end of 2018. A month ago, the group was ranked No. 95 out of 197 groups Investor’s Business Daily tracks. Today, the group is No. 55.
These Biotech Stocks Could Beat Estimates
Porges calls for Gilead and Regeneron Pharmaceuticals (REGN) to beat revenue estimates, and for Biogen and Celgene to top earnings forecasts.
Alexion Pharmaceuticals (ALXN) and AbbVie (ABBV) appear most likely to miss the consensus on sales, he says. But Porges predicts the biotech stocks’ revenue will lag by less than 1%. On earnings, he calls for Vertex Pharmaceuticals (VRTX) to be at risk of “falling merely in line.”
Overall, Porges expects the group of biotech stocks to maintain — or even beat — top-line growth of 7% from the third quarter. He credits volume trends in the U.S., stronger than anticipated after hitting a speed bump in mid-2018.
“The positive reaction to these trends is likely to be boosted by continued success for ongoing drug launches,” he said.
Among those, he notes Vertex’s cystic fibrosis drug Symdeko, Gilead’s HIV treatment Biktarvy, Regeneron’s eczema medicine Dupixent and migraine prevention treatment Aimovig from Amgen (AMGN). All seem likely to report sequential growth and top estimates.
“We also believe that companies without these launches and tailwinds already have low expectations, and still appear likely to meet or beat consensus,” he said.
Guidance Will Likely Be Conservative
However, biotech stocks are likely to remain conservative on 2019 guidance with the hopes of increasing their targets later in the year. Porges notes political and commercial risks remain for biotech stocks in 2019.
“For these reasons, (we) don’t envisage major sector or stock re-rating breakouts as a result of earnings surprises,” he said.
Porges expects most companies to issue revenue guidance just under or in line with the consensus. These biotech stocks could also issue below-consensus estimates for profit. As a group, though, these large-cap firms tend to beat initial targets by 6%-7%.
“Investors are likely to anticipate this upside rather than respond negatively to conservative guidance,” he said.
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