Streetwise: All the rhetoric in the world is not going to help your portfolio

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All the rhetoric in the world is not going to help your portfolio. What you need are quality investment opportunities, such as Biogen Idec (BIIB), a company with a $54.8 billion market cap that I have never discussed before.

Biogen develops and delivers therapies for the treatment of neurodegenerative diseases, hemophilia and autoimmune disorders. Founded in 1978, it is the world's oldest independent biotechnology company with nearly $6 billion in annual revenues.

Some of its better-known products are therapies for multiple sclerosis, such as Avonex and Tysabri. It also produces Rituxan, the world's most prescribed treatment for non-Hodgkin's lymphoma and an effective treatment for rheumatoid arthritis.

According to a market research study, Biogen's hemophilia drugs, Eloctate and Alprolix, are poised to capture a significant share of the market and also grow the market steadily by increasing prophylactic treatment. Indicated for hemophilia A and hemophilia B respectively, they significantly improve the quality of life of patients by reducing the number of infusions required to manage the chronic condition.

Looking at the company's second quarter ended June 30 earnings report, revenues were $1.7 billion, an increase of 21 percent when compared to the same period a year ago, while earnings per share were $2.06, an increase of 28 percent. Net income increased 27 percent to $491 million, exceeding both the S&P 500 and the biotechnology industry average.

The company's guidance for 2013 indicates that revenue growth of approximately 22 to 23 percent, with earnings per share expected to be in the range of $7.28 to $7.53.

Biogen has a healthy pipeline of products to support its earnings projection. Three drugs - Alprolix (hemophilia B), Eloctate (hemophilia A) and Plegridy (multiple sclerosis) - have moved past Phase III testing and have been filed with the FDA for approval.

Three drugs currently in Phase III testing are focused on forms of leukemia, non-Hodgkin's lymphoma and multiple sclerosis. And three drugs are in Phase II for treatment of lupus nephritis, optic neuritis and idiopathic pulmonary fibrosis.

A discounted earnings model yields an intrinsic value of $248 per share utilizing a 15 percent discount rate combined with a consensus five-year earnings growth rate of 21.11 percent. The more conservative free cash flow to the firm model suggests an intrinsic value of $275 per share, using trailing 12-month revenues of $5.942 billion, a revenue growth rate of 14.92 percent and a discount rate of 7.33 percent, which is the company's weighted average cost of capital. The shares recently closed at $230.59.

My earnings estimate for fiscal year 2013 is $8.25 per share with a projected share price of $258 for a capital gain of about 15 percent. There is currently no dividend.

bizopinion

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com.


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