There's Money to Be Made With Vertex, Viatris, Incyte and Biogen

Analysis by Barron's identifies these companies as undervalued

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Oct 24, 2021
Summary
  • Viatris has the biggest upside potential of 150%
  • Despite missteps, Incyte was praised for its strong pipeline
  • Analysts think Biogen’s Alzheimer’s drug will eventually meet expectations
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A screening of healthcare stocks in the S&P 500 reveals that investors may find plenty of upside in three members of the index, according to an article in Barron’s. The analysis showed that Vertex Pharmaceuticals (

VRTX, Financial), Viatris Inc. (VTRS, Financial) and Incyte Corp. (INCY, Financial) all sell at deep discounts to price forecasts by Wall Street analysts. The Nasdaq's Biogen Inc. (BIIB, Financial) also joins the list.

Healthcare stocks have lagged the overall market since the beginning of the Covid-19 pandemic, and among the biggest stragglers are the four large-cap companies cited by Barron's. For that and other reasons, Wall Street thinks the quartet may be poised for a breakout. Following are the price declines year to date, current stock prices, median targets and high targets for each of the stocks:

Company

YTD decline in stock price (%)

Current price

High target price

Average target price

Incyte

-30%

$65.80

$134.00

$97.80

Vertex

-23%

$183.52

$331.00

$258.45

Viatris

-24%

$18.94

$35.00

$20.15

Biogen

Flat

$264.80

$502.00

$366.93

As the table shows, Viatris has the biggest upside potential, according to analysts. The Pittsburgh-based firm’s high target price is more than 150% above where it trades now. The company, which has a market value of nearly $17 billion, was formed last year via the merger of the generic drugmaker Mylan and a Pfizer Inc. (

PFE, Financial) unit that sold off-patent drugs in overseas markets.

One analyst who likes Viatris is Bank of America’s (

BAC, Financial) Jason Gerberry. In a note on Oct. 12, Gerberry said, “In our view, ’21 execution, sound long-term guidance, a cogent/clearly communicated dividend policy, and value-creating business development strategy are key to overcoming VTRS’ historical discount to the peer group.”

Incyte, which calls Wilmington, Delaware home, would see its shares double if it reached its high target price. The $14.5 billion biopharmaceutical company stock has hit some major roadblocks recently, most notably Food and Drug Administration's concerns over the safety over a class of drugs that includes two from Incyte.

Despite the issue, the majority of analysts are bullish on the stock. Of the 20 who cover Incyte tracked by FactSet, 12 rate it a Buy while eight rate it a Hold.

“INCY has a deep and promising pipeline,” wrote Oppenheimer analyst Jay Olson in early October. “INCY’s diverse pipeline should drive accelerating revenue growth, which is currently undervalued, in our view.”

Even though its highly-touted and controversial Alzheimer’s drug Aduhelm has stumbled out of the starting blocks, Biogen is selling 90% below its high target. The company's shares rose more than 38% on the day in June when the FDA green-lighted Adhulem, but the stock has been in a tailspin since, whipsawed by private insurers who have said they won’t cover it, and some healthcare systems in the U.S. that said they won’t administer it.

Biogen’s future is riding on the success of Adhulem, and some analysts think the drug will eventually meet the company’s expectations. “While its initial launch is disappointing, based on the comments of our consultants we remain hopeful that Aduhelm will eventually achieve sales sufficient to return BIIB to growth,” Cowen analyst Phil Nadeau wrote in an Oct. 15 note.

Last of the favored four is Vertex, the mammoth $45 billion Boston-based company that concentrates on drugs to treat cystic fibrosis. The most bullish analysts think the stock could zoom from its current price of about $183 all the way to $331. The company’s two drugs to treat a lung and liver disorder haven’t worked out, but analysts think the company’s core cystic fibrosis franchise is solid.

“We continue to think the stock is not currently pricing-in any credit to the pipeline, and credit is currently being given only to the base business,” Cantor Fitzgerald analyst Alethia Young wrote in a note out Oct. 14.

Disclosures

I am/ we are currently short the stocks mentioned. Click for the complete disclosure
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