The lowest valuations
The lowest valuations are usually the blue-chip large-cap pharmaceutical stocks such as Gilead Sciences, Pfizer, Johnson & Johnson and AstraZeneca.
During a recent The Edge- TD Ameritrade webcast, Christopher Brankin, CEO of TD Ameritrade Singapore, says: “Some of the larger pharmaceutical companies have lots of different drugs and therapeutics in the pipeline such as Pfizer or Moderna.” Hence, they are not just reliant on a Covid-19 vaccine.
As an example, in September, Pfizer released full data for its next-generation ALK inhibitor Lorbrena to treat lung cancer. “We agree that the drug showed very impressive efficacy in the Crown trial, especially in patients with intracranial lesions, although the tolerability profile may limit the uptake of the product, in our view,” says Mizuho Securities. Pfizer also has vaccines for RSV or respiratory syncytial virus and pentavalent meningitis in late-stage development.
Mizuho has a price target of US$ 43, up 22% from its current price, based on a 75%/25% blend of discounted cash flow (DCF) valuation at US$44 and relative valuation at US$40. “Our DCF is based on cash flows forecasted through 2030, along with a 6% discount rate and a 0.5% rate of terminal growth,” Mizuho says. Its relative valuation is based on a 15 times multiple of 2021 P/E ratio.
“Pfizer has a dividend yield around 4%,” Brankin points out. “That is something that has been interesting and we do see some more people participating in Pfizer,” he adds.
Among the Chinese pharmaceutical companies, SinoPharm has the lowest valuation with a dividend yield of 4%, with a consensus of analysts on Bloomberg expecting a 58% upside from its current levels.
In our table, we have included Gilead Sciences because of its portfolio of antiviral drugs, including Remdesivir which has been shown to be effective against Covid-19 and which has emergency approval from the US Food and Drug Administration. According to Gilead’s CEO, Daniel O’Day, five- day treatment course using 6 vials of Remdesivir, equates to US$2,340 per patient.
“We discounted the price to a level that is affordable for developed countries with the lowest purchasing power. This price will be offered to all governments in developed countries around the world where Remdesivir is approved or authorised for use. At the current price of US$390 per vial, Remdesivir is positioned to achieve the aim of providing immediate net savings for healthcare systems,” O’Day said on June 29.
On Sept 29, Regeneron announced initial results for an antibody cocktail of Covid-19 outpatients. From Oct 2–6, US President Donald Trump was reportedly given the Regeneron cocktail, and a course of Remdesivir.
Interestingly, Gilead has the highest dividend yield of 4.4% among the pharmaceutical stocks, and its ability to pay dividends is demonstrated by operating and free cash flow of more than 11% (see table).
The earliest Covid- 19 vaccine, according to Pfizer’s timetable, could be approved by the end of November. However, China’s nonchalant holiday-makers appear to be travelling with some sort of immunity, most likely triggered by SinoPharm’s vaccine.
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