Market Overview

Illumina and Other Bargain Biotech Stocks Worth a Look Now

The research team at PropThink, which focuses on emerging growth companies in the health care sector, recently offered a list of bargain biotech stocks worth a look.

The stocks that made the list include Endo Health Solutions (NASDAQ: ENDP), Illumina (NASDAQ: ILMN) and Keryx Biopharmaceuticals (NASDAQ: KERX). Below is a quick look at how these three stocks have fared and what analysts expect from them.

Biotech stocks have performed very well so far this year. In fact, the share prices of the four largest U.S. biotech companies -- Amgen (NASDAQ: AMGN), Biogen Idec (NASDAQ: BIIB), Celgene (NASDAQ: CELG) and Gilead Sciences (NASDAQ: GILD) -- reached all-time highs this past week.

Other picks on the PropThink list of undervalued biotech stocks include smaller players AVEO Pharmaceuticals (NASDAQ: AVEO) and Exact Sciences (NASDAQ: EXAS).

Endo Health Solutions

This provider of specialty health care solutions sports a market capitalization of about $4 billion and it is headquartered near Philadelphia. Note that the long-term earnings per share (EPS) growth forecast is only about five percent and the return on equity is in the red. Revenue for the most recent quarter is expected to be up nearly seven percent when Endo Health Solutions reports results next week.

The short interest in Endo Health Solutions was about eight percent of the float as of the April 15 settlement date. The number of shares sold short rose almost 10 percent from the previous period to the highest level of short interest in at least a year. But days to cover fell from more than six to about three.

Nine of the 20 analysts that follow the stock and were polled by Thomson/First Call recommend buying shares, while only three rate the stock at Underperform. The share price has overrun the mean price target, or where the analysts expect the share price to go. But a positive earnings surprise or rosy guidance could prompt analysts to raise their price targets.

The share price is up about 39 percent year-to-date and hit a 52-week high last week. Over the past six months, the stock has outperformed the likes of Abbot Labs (NYSE: ABT) and Teva Pharmaceuticals (NYSE: TEVA), as well as the broader markets.

Illumina

Based in San Diego, this maker of tools for the analysis of genetic variation and biological function has a market cap of about $8 billion. Its long-term EPS growth forecast is about 17 percent. The price-to-earnings (P/E) ratio is higher than the industry average, but so is the operating margin. Illumina topped consensus EPS estimates in the most recent quarter by nearly 18 percent.

The short interest in Illumina was more than 23 percent of the float in the middle of April. That was the highest number of shares sold short so far this year. And note that days to cover is about 28, though that was down from about 31 in the previous period.

Ten of the 21 analysts surveyed recommend buying shares, but just one rates the stock at Underperform. Here too the current share price is higher than the mean price target, meaning the analysts on average see no upside potential at this time.

The share price has risen more than 17 percent since the beginning of the year and reached a 52-week high last week. Over the past six months, the stock has outperformed Affymetrix (NASDAQ: AFFX) and Luminex (NASDAQ: LMNX), as well as the broader markets.

Keryx Biopharmaceuticals

This maker of pharmaceutical products for the treatment of renal disease is headquartered in New York City, and it has a market cap of about $660 million. The long-term EPS growth forecast is approximately 30 percent. But here too the return on equity is in negative territory, and note that net losses have been larger than expected in three of the past four quarters.

The number of Keryx Biopharmaceuticals shares sold short as of mid-April represented less than 23 percent of the total float. That was the third period of rising short interest and the highest level in at least a year. But days to cover dropped to about five in the most recent period.

All of the eight polled analysts recommend buying shares, with four of them rating the stock at Strong Buy. Their mean price target represents more than 36 percent potential upside relative to the current share price, and it would be a level the stock has not seen since 2007.

The share price is about 193 percent higher year-to-date, though that gain came mostly in January. Shares have traded mostly between $7 and $8 since early March. However, the stock has outperformed competitors Baxter (NYSE: BAX) and Shire (NASDAQ: SHPG) over the past six months.

Posted-In: Abbot Labs affymetrix amgen AVEO Pharmaceuticals baxterLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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