The biotech sector is expanding due to innovations and robust demand. In addition, as the biotech sector enjoys inelastic demand for its products and services, it remains relatively stable in the face of economic uncertainty.
So, investors looking for quality biotech stocks can consider buying Gilead Sciences, Inc. (GILD). However, I think it could be wise to wait for a better entry point in Moderna, Inc. (MRNA), for reasons discussed throughout this article.
The Biden administration’s National Biotechnology and Biomanufacturing Initiative is expected to boost the industry’s long-term growth.
The global biotechnology market is estimated to grow at a CAGR of 10.5% until 2025. The increasing number of initiatives by business and government agencies and the lowering prices of genome sequencing are major drivers for the market’s growth.
Investors’ interest in biotech stocks is evident from the SPDR Series Trust SPDR S&P Biotech ETF (XBI) gained 7.5% over the past three months.
However, the biotech industry might face a difficult road ahead, with established big pharma companies in need of addressing innovation deficits, while fledgling biotechs face a capital-constrained operating environment.
Let’s delve deeper into the fundamentals of the stocks mentioned above.
Stock to Buy:
Gilead Sciences, Inc. (GILD)
Biopharmaceutical company GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.
On June 7, 2023, GILD announced a licensing arrangement with AbTherx, Inc., a privately held biotech startup focusing on speeding antibody therapy discovery and development. The license arrangement gives AbTherx access to Gilead’s newly acquired unique transgenic mouse technology, which were developed by three of AbTherx’s founders. These technologies will be commercialized by AbTherx as AtlasTM Mice.
GILD’s forward EV/Sales of 4.21x is 11.9% lower than the industry average of 3.76x. Its forward Price/Book multiple of 4.03 is 46.3% lower than the industry average of 2.76.
GILD’s trailing-12-month EBITDA margin of 46.07% is significantly higher than the industry average of 2.18%. Its trailing-12-month asset turnover ratio of 0.43x is 23.1% higher than the industry average of 0.35x.
GILD’s operating income increased 765.5% year-over-year for the first quarter that ended on March 31, 2023, to $1.71 billion. The company’s attributable net income came in at $985 million, representing a significant increase year-over-year. Also, its EPS increased significantly from the year-ago value to $0.80.
The consensus revenue estimate of $27.29 billion for the year ending December 2024 represents a 2.2% increase year-over-year. Its EPS is expected to grow 6.4% to $7.21 for the same period. It surpassed EPS estimates in three of four trailing quarters.
GILD’s shares have gained 21.7% over the past year to close the last trading session at $76.08.
GILD’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GILD also has an A grade for Value and a B for Stability and Quality. It is ranked #2 out of 382 stocks in the Biotech industry. Click here for the additional POWR Ratings for Growth, Momentum, and Sentiment for GILD.
Stock to Hold:
Moderna, Inc. (MRNA)
MRNA is a biotech company that discovers, develops, and commercializes messenger RNA therapeutics and vaccines for treating infectious diseases, immuno-oncology, rare diseases, autoimmune and cardiovascular diseases in the United States, Europe, and internationally.
MRNA’s forward EV/Sales of 4.51% is 20% higher than the industry average of 3.76%, while its trailing-12-month EV/EBIT of 6.86% is 66.7% lower than the industry average of 20.59%.
MRNA’s trailing-12-month CAPEX/Sales of 2.53% is 45.9% lower than the industry average of 4.67%, while its trailing-12-month EBITDA margin of 34.36% is significantly higher than the industry average of 2.18%.
MRNA’s total revenue for the first quarter ended March 31, 2023, decreased 69.3% year-over-year to $1.86 billion. Its net income and EPS came in at $79 million and $0.19.
However, its total current liabilities came in at $3.50 billion for the period that ended March 31, 2023, compared to $4.92 billion for the period that ended December 31, 2022. Its total liabilities came in at $5.26 billion, compared to $6.74 billion in the same period.
MRNA’s EPS is expected to come in at $0.53 for the quarter ending September 2023. Over the past six months, the stock has lost 29.8%.
MRNA’s has an overall C rating, equating to a Neutral in our POWR Ratings system.
It also has a C grade for Sentiment. It is ranked #69 in the same industry. Beyond what is stated above, we’ve also rated MRNA for Value, Momentum, Stability, Growth, and Quality. Get all MRNA ratings here.
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GILD shares were trading at $77.43 per share on Thursday morning, up $1.35 (+1.77%). Year-to-date, GILD has declined -8.95%, versus a 12.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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