February 14, 2020

Alexion: An Undervalued Growth Stock

From Christina Huff:

lexion Pharmaceuticals (ALXN) is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders; I consider this an undervalued growth stock, notes Crista Huff, editor of Cabot 
Undervalued Stocks Advisor.

The company just reported a good fourth quarter; revenue was $1.38 billion and non-GAAP EPS was $2.71, each higher than the respective consensus estimates of $1.31 billion and $2.60.

All four pharmaceutical brands — Soliris, Ultomiris, Strensiq and Kanuma — delivered higher-than-expected revenue. Full-year 2019 EPS was $10.53 vs. the expected $10.43, up 33.0% vs. the prior year. The earnings report itemizes nearly 20 projects and clinical trials that Alexion is currently pursuing.

Management expects to achieve revenue in a range of $5.50-$5.56 billion in 2020, and non-GAAP EPS in a range of $10.65-$10.85. The prior consensus 2020 revenue and EPS estimates were $5.64 billion and $11.37, respectively.
The stock fell as investors expressed their disappointment that the costs of the Achillion acquisition will impact full-year 2020 profits, as will an increased tax rate, and the higher R&D costs associated with Alexion’s current volume of clinical trials.

I keep track of earnings estimates during the entire time that I follow any particular company, and I’ve been following Alexion for many years. Its earnings estimates climb consistently throughout each year, and even at year end, the final results outperform Wall Street estimates.

Therefore, the current expectation of 3% EPS growth in 2020 is likely a very low estimate vs. the number Alexion will ultimately report a year from now. In that light, I think today’s reaction to the share price was just plain silly.

The company grew EPS 27%, 35% and 33% in 2017 through 2019. The 2020 P/E is 9.3, which is extremely low for a biopharmaceutical stock. I’m moving ALXN from "Buy" to a "Strong Buy" recommendation. The stock is cheap. Patient growth stock investors should accumulate these shares.

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