(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Biogen Inc's (BIIB) stock has rebounded sharply over the past few weeks, with the stock rising by over 14% since April 23. But the technical chart suggests shares of Biogen may give back some of those big gains in the coming weeks, by as much as 7%.
The stock has struggled in 2018, with shares down by nearly 20% from their highs in late January and for a good reason. It isn't only the technicals that are struggling, the underlying fundamentals of the business continue to struggle as well. Revenue and earnings forecasts for the company are expected to continue to be weak over the next few years, and that poses a severe threat to the stock's ability to rebound further.
Weak Technical Chart
Biogen shares have risen to a technical resistance level at $300 and have failed to rise above that resistance level. It would suggest the stock may be set to fall back to technical support at $280, a drop of about 7% from its current price around $300. Another bearish indication is the relative strength index (RSI) reaching overbought levels with a reading near 70. Daily volume has also been trending lower while the stock has been climbing—yet another bearish sign. (For related reading, see also: Biogen Could Rise 20% on Healthy Outlook.)
But if the stock can successfully rise above the technical resistance at $300, it shares could increase by about 8% to roughly $325.
The company's fundamental outlook continues to look weak, with earnings expected to grow by 9% in 2018 and only 10% in 2019. Revenue growth is forecast to be even weaker, with a growth rate of just 5.5% in 2018, falling to only 2.8% in 2019. The lack of both top and bottom-line growth poses a problem for the stock going forward. Even though the shares are trading at 11.3 times 2019 earnings estimates of $26.19 per share, when adjusting for growth the PEG ratio is over 1.1. This tells investors the low PE ratio is not as cheap as it appears.
Analysts have been slashing their price targets on the stock as well, cutting the outlook by over 8% since early February. On average, analysts have a price target on the stock of roughly $351, down from an average of $382. (For more, see also: Why Biogen May Sink Biotech Stocks.)
The weak technical setup and poor fundamental outlook suggest Biogen shares will continue to struggle over the short to medium term. But, as with all biotech stocks, positive results from a clinical trial or an update to its pipeline could change where the stock goes in the blink of an eye.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.