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Regeneron is a Real Deal With a P/E of Only 14

Stock (Symbol)

Regeneron (REGN)

Stock Price

$497

Sector
Healthcare
Data is as of
December 9, 2020
Expected to Report
February 2
Company Description
REGN, Inc. is an integrated biopharmaceutical company that discovers, invents, develops, manufactures and commercializes medicines for the treatment of serious medical conditions. REGN commercializes medicines for eye diseases, colorectal cancer, and a rare inflammatory condition and has product candidates under development in other areas, including hypercholesterolemia, oncology, rheumatoid arthritis (RA), asthma and atopic dermatitis. REGN’s marketed products include EYLEA (aflibercept) injection, ZALTRAP (ziv-aflibercept) injection for intravenous infusion and ARCALYST (rilonacept) injection for subcutaneous use. The Company has 17 product candidates in clinical development. Its product candidates consist of two trap-based clinical programs and 15 human monoclonal antibody product candidates. REGN has generated each of the antibodies using its VelocImmune technology. Source: Thomson Financial
Sharek’s Take
David SharekRegeneron (REGN) has a potential antibody cocktail for COVID-19 that has been in the news for helping cure President Donald Trump. In 2019 the FDA approved Regeneron’s Ervebo, the first vaccine for the prevention of Ebola. Due to Ervebo’s success — and the similarities between Ebola and COVID — the company’s CEO stated REGN could easily create a COVID-19 drug, then came through and did it. But the majority of company revenue still comes from the company’s eye drug Eylea. Eylea domestic sales in addition to International sales from its partnership with Bayer pushed the drug’s share of total company revenue to 70%. This medication was recently taken by President Trump, who proceeded to get over the Coronavirus in rapid time. Here’s a short list of Regeneron’s (potential) big-drug lineup:

  • Eylea, which treats molecular degeneration, the leading cause of blindness in the US. There are expectations that this drug (or a version of it) could help other eye problems. Eylea is the blockbuster in REGN’s portfolio, and accounted for 58% of revenue in 2019.
  • Dupixent (dupilumab) a drug for asthma and/or atopic dermatitis. Dupixent, is currently delivering rapid growth with 151% sales growth in 2019 and is expected to be the next blockbuster for the company. Phase III data showed Dupixent reduced severe asthma attacks in children by up to 65%. Also, in Europe, the company is excited about Dupixent in atopic dermatitis in childdren ages 6 to 11.
  • Libtayo is FDA approved for a type of skin cancer, and is being tested with other drugs to treat cancer. A Libtayo combination has recently had success in a lung cancer trial. Results from a Libtayo chemotherapy combination trial for lung cancer stydy should be avaiable next year.
  • REGN-COV2 is the cocktail that reduced viral levels and improved symptoms in COVID-19 patients. In July management announced a $450 million supply agreement with the U.S. government for batched os REGN-COV2. For comparison, the company is expected to do $8.5 billion in sales this year.

During the past decade, Regeneron has blossomed into one of the world’s top drug companies. The backbone to this drug research is three decades of investment in REGN’s VelociSuite, and end-to-end drug discovery platform. Regeneron routinely invests 30% of revenue in Research & Development, compared to the industry average of 20%. Management also has a stock buyback program. Regeneron is a source of stable growth within stocks in the drug industry. I don’t know what the COVID drugs will be as a percentage of total sales. So its not prudent to guess that COVID treatments will be a catalyst. Looking at the stock as it is now, analysts it an Estimated Long Term Growth Rate of 12% per year and the P/E is 14. That’s a solid value for a drug company. But I’m not a true pro on drug stocks. I bought this stock last qtr when it was ~$600 and now its ~$500. REGN is part of the Conservative Growth Portfolio. The stock has 41% upside to my 2021 Fair Value of $699.

One Year Chart
REGN has been in a downtrend for 2 qtrs now. That’s surprising because the profit growth (+18%, +25%) has been good and the COVID treatments could boost results more than analysts are currently planning on.

Last qtr the P/E was 21, this qtr it’s 14. But last qtr I was looking at 2020 estimates and this qtr I’m looking at 2021’s.

The Est. LTG of 11% is down from 12% last qtr. I think that’s fine for a conservative stock.

Earnings Table
Last qtr, REGN delivered 25% profit growth and whipped estimates of 6%. Revenue increased 12%. Eylea has solid revenue growth of 9%. Dupixent had 69% revenue growth compared to last year. Overall, Eyela had $2.1 billion in global sales and Dupixent had $1.1 billion, with some of these sales split with Bayer and Sanofi.

Annual Profit Estimates got a nice rise this qtr.

Qtrly profit Estimates are for 13%, 28%, 17% and 9% profit growth the next 4 qtrs. These numbrs are solid. Also, the 4QtrsOutEst mght need time to adjust as analysts are often slow to increase this figure after a company beats the street in a big way.

Fair Value
Back in 2012 shares REGN jumped from $55 to $171 on the back of its new blockbuster drug Eylea, which was FDA approved in November 2011. The stock shot from the $50s to the $90s that January and peaked above $550 by the Summer of 2015.

In recent years, profit growth has been good, yet the stock’s P/E has come down. I think the P/E was too low in 2019 when the stock had a mediam price of $357.

At ~$497, there’s substantial upside for this stock, in my opinion. I think REGN should earn a 19 P/E and my 2021 Fair Value is $699, 41% higher than the recent quote.

Bottom Line
Regeneron (REGN) was a fabulous growth stock in the early part of the decade. I missed a lot (all?) of this run higher because I wasn’t tracking the company closely enough. At the time, REGN was whipping profit estimates as annual estimates were soaring. That helped the stock surge in price.

Now the stock has digested its prior gains. And with a low P/E of 14 (on 2021 profit estimates) the stock seems to have huge upside.

REGN moves up from 18th to 14th in the Conservative Growth Portfolio Power Rankings.

Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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