Big Biotech Is On The Move

Includes: BIIB, GILD
by: Bret Jensen


After a big ~6 week sell-off, it appears the biotech sector might have bottomed last week.

Several big biotechs have bounced nicely from their recent lows but are still significantly below their pre-pullback highs.

Below are two of these attractive big biotech plays that have delivered solid earnings reports this week.

The dip in March and early April across the biotech sector looks like it was a gift to pick up some of the largest biotech companies' shares at a great discount at this point. Large cap biotechs look like they bottomed last week and some of the leaders in the sector are giving investors a lot to cheer about.

Even though these shares have bounced recently, they are below the levels they were at before the sell-off began. Here are two of the large-cap biotech stocks I bought on the dip and have no plans to divest in the near future as I believe they have further upside. Both were mentioned in Citigroup's recent list of stocks with market capitalizations of $3B and above with the most upside potential.

Not even Jim Cramer can put enough hyperbole on Gilead Sciences' (NASDAQ:GILD) earnings report after the bell on Tuesday. The company absolutely crushed estimates led by stellar initial sales from its new Hepatitis C drug Sovaldi.

Gilead posted earnings of $1.48 a share, almost 60 cents a share above the consensus. Revenue came in at a whopping $1B over estimates. Net income more than tripled Y/Y and revenues jumped over 100% above their levels in this quarter last year.

Sovaldi sales came in at $2.27B. This crushed expectations of just $1.3B and even the most optimistic estimate of $2B. To put this number in context, at the beginning of the year S&P thought Sovaldi would do $3B in sales for the entire year. Look for earnings estimates and stock price targets on GILD to be taken significantly higher in the next week or so as analysts factor in this blowout quarter.

Gilead is set to more than double earnings to over $4 a share this fiscal year. Currently, analysts have a little over $6 a share in profits penciled in for FY2015. Look for both estimates to move substantially higher in the weeks ahead. The stock currently goes for 12x current estimates of FY2015 EPS. This is much too cheap in my opinion. Although the stock has bounced off its pull back lows, it is still significantly below its February 25th closing high of just under $84 a share. BUY.

Biogen Idec (NASDAQ:BIIB) was a big biotech company I bought on the recent dip. The company delivered earnings this morning that showed net income increased 12% Y/Y and beat revenue expectations by some $130mm. As importantly, the company posted its fifth straight quarter of accelerating sales growth.

The company has a well-diversified product portfolio that has four drugs that should generate between $1B to $3B of annual sales. Revenues for the quarter were as follows; Avonex: $761M, Tecfidera: $506M, Tysabri: $441M and Rituxan & Gazyva: $297M. Biogen's multiple sclerosis drug (Tecfidera) extended its run of eclipsing Wall Street sales forecasts.

Biogen also slightly raised forward guidance. Biogen Idec earned just under $9 a share in 2013. The current consensus estimates have it earning more than $11 a share this year before jumping to over $14 a share in 2015. The stock dropped to just under $280 in the recent biotech sell-off. It currently goes for just under $310 a share which is still substantially below the over $350 a share the shares went for before the recent bout of panic selling in biotech.

Disclosure: I am long BIIB, GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.