[Updated: 3/12/2021] Regeneron Update
A few months back in December 2020, we discussed why Regeneron stock (NASDAQ: REGN) looks undervalued. The stock since then has had a volatile ride with gains of 7% between early December 2020 and late January 2021, followed by a drop of 15% to $468 currently. In the first week of February 2021, Regeneron reported its Q4 results. topping street estimates. The company’s total revenue of $2.4 billion was up 30% y-o-y, driven by higher Eylea, a treatment for macular degeneration, and eczema drug – Dupixent – sales. Looking at the bottom line, non-GAAP earnings of $9.53 per share were up 27% y-o-y, and well above the consensus estimates of $8.39.
The company, during the same time, also announced positive results for its Covid-19 antibody cocktail in a late stage clinical trial. While REGN stock surely has seen ups and downs based on developments around its Covid-19 antibody cocktail, it isn’t really going to be a big boost for its top-line in the long run, in our view. The antibody garnered just $146 million in Q4 sales, and now with Covid-19 cases on a decline, and a rise in the vaccination rate, the demand will likely be lower than earlier anticipated, partly explaining the decline in REGN stock.
However, the driving force for Regeneron’s business is its three drugs – Eylea, Dupixent, and Libtayo. Eylea is expected to continue to garner close to $8 billion in annual sales for next few years, while Dupixent’s peak sales are estimated to be north of $10 billion, as compared to $4.0 billion seen in 2020. Lastly, Libtayo, which recently secured the U.S. FDA approval for first-line treatment of a certain type of lung cancer, can see its peak sales north of $1 billion, compared to $348 million seen in 2020.
Now, 2021 revenues are estimated to see strong growth due to the Covid-19 antibody, and the sales will decline in 2022, following a drop in Covid-19 related demand. From a valuation point-of-view, it makes more sense to look at Regeneron’s 2022 earnings, rather than 2021. At the current price of $468, REGN stock is trading at 12x its expected adjusted earnings of $39.74 in 2022, compared to levels north of 15x seen in 2018 and 2019, implying the stock is undervalued currently. As such, we believe that REGN stock could see strong upside going forward. Our dashboard ’What Factors Drove 26% Change In Regeneron Stock Since 2018’ provides more details.
[Updated: 12/2/2020] Buy Or Sell REGN Stock
While Regeneron stock (NASDAQ: REGN) is up 38% since the start of the year, it has dropped around 20% from its July highs of around $660. After the recent decline, REGN stock could offer an upside in the near term, as the company’s revenues in the last three quarters have grown by 29%, primarily aided by market share gains for Eylea, a treatment for serious eye conditions, including macular degeneration and diabetic retinopathy. This is likely to bolster the earnings growth rate of the company in the near term – leading to stock price growth.
While better than estimated earnings in Q2 and Q3 has helped REGN stock this year, much of the movement in the stock was based on the developments related to its Covid-19 treatment as well as vaccines developed by other pharmaceutical companies. The company in late November secured the U.S. FDA Emergency Use Authorization nod for its antibody cocktail of casirivimab and imdevimab for treating patients with mild to moderate Covid-19. Regeneron’s treatment appears to have more advantages compared to others that are being developed or approved. The Regeneron treatment may be useful in the long-run, as it can help elderly and patients with compromised immune systems, who often do not respond well to vaccines. However, given the development of vaccines. with Pfizer’s
That said, companies such as Regeneron derive a bulk of their revenue from other established products and the markets likely weren’t assigning a big value to the Coronavirus treatments, in the first place, given the nebulous long-term demand. Also, many of the Coronavirus treatments are drugs that were initially developed for other diseases meaning that development-related costs likely aren’t high. REGN stock looks attractive at current levels despite the 38% rise this year, as it continues to sees market share gains for Eylea and other drugs. Our dashboard ‘Buy Or Sell Regeneron Stock provides the key numbers behind our thinking, and we explain more below.
Looking at a wider time horizon, REGN stock is up 38% since early 2019. Some of the stock price rise over the last year or so is justified by the roughly 17% growth seen in Regeneron’s revenues from $6.7 billion in 2018 to $7.9 billion in 2019, and the figure is $9.2 billion for the last 4 quarters. However, the company’s Net Margin contracted 26% from 36% to 27%, resulting in an earnings decline of 13%. On a per share basis, earnings were down 14% from $22.65 to $19.38, partly due to a 1.4% growth in total shares outstanding due to share issuance. The margin contraction can primarily be attributed to a 39% jump in R&D expenses, due to a $400 million up-front payment to Alnylam related to the collaboration agreement between the two companies. Looking at the first nine months of 2020, R&D expense is up just 5% compared to total revenue growth of 29%.
Finally, Regeneron’s P/E ratio has expanded over the recent years. It grew from 16.5x in 2018 to 19.4x in 2019. While the company’s P/E has now increased to 26.5x trailing earnings, it could see further expansion given the benefit to its business from the expansion of Eylea, and higher revenues and earnings growth in 2020 and beyond.
How Is Coronavirus Impacting REGN Stock?
The global spread of Coronavirus has meant there just aren’t many people visiting doctors for non-emergency cases, and several types of elective surgeries are being postponed, impacting the sales growth of pharmaceutical companies, such as Regeneron. While the company’s Covid-19 treatment may not be a big drug in terms of sales after the vaccines hit the market, Regeneron’s Eylea looks reasonably strong and Dupixent – an antibody used for allergic diseases, co-developed with Sanofi
Looking at the broader economy, the actual recovery and its timing hinge on the containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. Considering the near-term potential upside from expanding sales of Eylea and strong potential for Dupixent, the company looks like a reasonably good bet, with additional gains looking quite likely. At levels of $515, REGN stock is trading at 14x its 2021 estimated adjusted earnings of $36.81, compared to levels of 16x seen in 2018 and over 15x seen as recently as late 2019, implying the stock still has some room for growth.
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