Dj Gilead Sciences Inc. Stock Underperforms Tuesday When Compared To Competitors

Investors looking for stocks in the Medical - Biomedical and Genetics sector might want to consider either Gilead Sciences (GILD) or Vertex Pharmaceuticals (VRTX). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Gilead Sciences has a Zacks Rank of #2 (Buy), while Vertex Pharmaceuticals has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that GILD likely has seen a stronger improvement to its earnings outlook than VRTX has recently. However, value investors will care about much more than just this.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

GILD currently has a forward P/E ratio of 23.01, while VRTX has a forward P/E of 1,045.25. We also note that GILD has a PEG ratio of 3.11. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. VRTX currently has a PEG ratio of 85.68.

Another notable valuation metric for GILD is its P/B ratio of 6.57. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, VRTX has a P/B of 8.28.

These are just a few of the metrics contributing to GILD's Value grade of B and VRTX's Value grade of D.

GILD is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that GILD is likely the superior value option right now.

Zacks Investment Research

Bristol Myers Squibb Company BMY touched a 52-week high of $56.8 on Nov. 6. The stock is currently trading at $54.14. This biotech giant has been having a good run for the past three months, regaining its lost territories and giving anxious investors a ray of hope.

Shares of BMY have risen 20.1% in the past six months compared with the industry’s growth of 5.3%. The stock has also outperformed the sector and the S&P 500 during this period.

On Oct. 31, Bristol-Myers reported better-than-expected third-quarter results, driven by higher demand for Reblozyl, Breyanzi, Camzyos and Opdualag. Growth in Eliquis drug also led to an upside in the top line. Consequently, the company raised its annual earnings guidance. Following this, the stock also rallied.

Bristol Myers Outperforms Industry, Sector & S&P 500

Newer Drugs Boost BMY’s Top Line

BMY is banking on newer drugs like Reblozyl, Breyanzi, Camzyos and Opdualag to stabilize its revenue base as its legacy drugs face generic competition. Reblozyl has put up a stellar performance in the past few quarters with strong growth in the United States as well as international markets. The drug should contribute significantly in the coming decade.

The sales of oncology drug Opdualag have been robust, fueling the top line. Per BMY, the drug has already become a standard of care in first-line melanoma setting in the United States with a market share of 30%.

Sales of Breyanzi also continue to gain traction from the approval of recent new indications and expanded manufacturing capacity.

BMY Boosts Portfolio With Schizophrenia Drug

Bristol Myers, like its fellow biotech player Gilead Sciences, Inc. GILD, is looking to counter generic competition for its key drugs through strategic acquisitions and the introduction of new drugs to its product portfolio.

The company recently won FDA approval for xanomeline and trospium chloride (formerly KarXT), an oral medication for the treatment of schizophrenia in adults. The drug was approved under the brand name Cobenfy, representing the first new pharmacological approach to treating schizophrenia in decades. The approval of Cobenfy for schizophrenia broadens BMY’s portfolio and validates the acquisition of Karuna Therapeutics.

BMY earlier acquired Mirati Therapeutics for $4.8 billion. The acquisition added Mirati’s lung cancer drug Krazati (adagrasib) to its oncology portfolio.

The acquisition of RayzeBio added its proprietary radiopharmaceutical platform, along with its innovative pipeline of potentially first-in-class and best-in-class actinium-based radiopharmaceutical therapeutics, to Bristol Myers’ oncology portfolio.

Challenges for Older BMY Drugs

While the new drugs drive growth, one of BMY’s top drugs, Revlimid (indicated for multiple myeloma), faces generic competition, adversely impacting its top line.

While Revlimid sales continue to decline, the drug managed to beat on earnings in the third quarter and provided an upside to the top line.

Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer PFE, is the biggest contributor to the top line. An upside in Eliquis sales in the third quarter helped BMY beat on revenues in the quarter.

However, Eliquis is slated to face generic competition later in the decade, and Opdivo might face a slowdown as core indications mature.

These three drugs comprise a major chunk of the company’s revenues. Meanwhile, leukemia drug Sprycel is also facing generics in the United States, which is adversely impacting its sales. Pomalyst is facing generics in Europe.

Cost-Cutting Measures Should Boost BMY's Earnings

In April 2024, BMY announced a strategic cost-reduction plan that should result in approximately $1.5 billion in savings by the end of 2025. The company will focus on prioritizing investing in candidates that will deliver the best long-term returns and optimizing operations across the organization.

BMY’s High Debt Ratio Worrisome

While BMY’s strategy of acquiring companies with promising drugs/candidates is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of Sept. 30, 2024, Bristol Myers’ total debt-to-total capital ratio was a staggering 74.3%. This is worrisome. The company had cash and equivalents of $7.9 billion and a long-term debt of $48.7 billion as of the aforementioned date.

Valuation

Going by the price/earnings ratio, BMY’s shares currently trade at 8.63x forward earnings, lower than both its mean of 8.66x and 17.57x for the large-cap pharma industry.

Estimate Movement

Over the past 30 days, the Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $0.88 from $0.76. EPS estimate for 2025 has also gained 7 cents.

There were some impressive earnings movers last week lead by Applovin’s 46% rally. CVS Corp , Palantir and Gilead Sciences also had big rallies, while Super Micro Computer’s woes continued with an 18% slide.

This week, we have Home Depot , Alibaba , Disney , Shopify and Spotify all set to report among some other important names.

Before a company reports earnings, implied volatility is usually high because the market is unsure about the outcome of the report. Speculators and hedgers create huge demand for the company’s options which increases the implied volatility, and therefore, the price of options.

After the earnings announcement, implied volatility usually drops back down to normal levels.

Let’s take a look at the expected range for these stocks. To calculate the expected range, look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. Use the first expiry date after the earnings date. While this approach is not as accurate as a detailed calculation, it does serve as a reasonably accurate estimate.

Monday

MNDY – 13.3%

Tuesday

SHOP – 13.2%

OXY – 4.3%

HD – 4.1%

CAVA – 12.1%

ONON – 10.9%

SPOT – 9.7%

SE – 11.9%

SU – 3.9%

Wednesday

CSCO – 5.3%

Thursday

DIS – 6.9%

JD – 8.9%

Friday

BABA – 6.3%

Option traders can use these expected moves to structure trades. Bearish traders can look at selling bear call spreads outside the expected range.

Bullish traders can sell bull put spreads outside the expected range, or look at naked puts for those with a higher risk tolerance.

Neutral traders can look at iron condors. When trading iron condors over earnings, it is best to keep the short strikes outside the expected range.

When trading options over earnings, it is best to stick to risk defined strategies and keep position size small. If the stock makes a larger than expected move and the trade suffers a full loss, it should not have more than a 1-3% effect on your portfolio.

Stocks With High Implied Volatility

We can use Barchart’s Stock Screener to find other stocks with high implied volatility.

Let’s run the stock screener with the following filters:

• Total call volume: Greater than 2,000
• Market Cap: Greater than 40 billion
• IV Percentile: Greater than 80%

This screener produces the following results sorted by IV Percentile.

The biopharmaceutical sector showed signs of recovery in the third quarter of 2024, fueled by increased investor optimism following the U.S. Federal Reserve’s interest rate cuts in September.

According to GlobalData, the top 20 global biopharmaceutical companies saw a 2% rise in their combined market capitalization, reaching $4.3 trillion by the end of September, up from $4.2 trillion in June.

This rebound highlights the industry’s potential for growth despite challenges earlier in the year.

Bristol-Myers Squibb & Co led the market with the largest increase in capitalization, which surged by 24.6% to $105 billion. This was largely driven by advancements in its pipeline, notably the FDA’s approval of its antipsychotic drug, Cobenfy, for treating schizophrenia in September 2024.

Gilead Sciences Inc also posted impressive growth, rising 22.1% in market value, thanks to the accelerated FDA approval of Livdelzi, a treatment for primary biliary cholangitis, as well as the approval of its antibody-drug conjugate, Trodelvy, for HR-/HER2- breast cancer in Japan.

Sanofi SA experienced a 19.2% jump in market capitalization, largely fueled by its flagship drug Dupixent. The drug’s strong performance in the treatment of conditions such as asthma and atopic dermatitis, coupled with its recent EMA and FDA approvals for chronic obstructive pulmonary disease (COPD), further boosted Sanofi’s standing.

Similarly, AbbVie Inc saw a 15.2% increase in its market cap, driven by the continued success of its immunology drugs—Humira, Skyrizi, and Rinvoq—which together generated nearly $7 billion in Q2 2024 sales.

Alnylam Pharmaceuticals Inc joined the top 20 biopharmaceutical companies with a 14.9% rise in its market value, following its RNAi drug vutrisiran's positive results in treating ATTR amyloidosis with cardiomyopathy.

Roche Holdings AG's market capitalization grew by 13.8%, spurred by the FDA’s approval of two key products, Ocrevus Zunovo for multiple sclerosis and Tecentriq Hybreza for oncology indications, the latter being the only approved subcutaneous PD-L1 inhibitor available.

On the downside, Wegovy maker Novo Nordisk A/S saw an 18.2% drop in its market cap after the FDA rejected its BLA filing for the once-weekly insulin icodec.

Similarly, Eli Lilly & Co reported a slight decline of 2.1%, though both companies retained their leadership in diabetes and weight loss drugs.

Merck & Co Inc also faced a 8.2% fall in market value, largely due to disappointing sales of its HPV vaccine, Gardasil, in China.

"The biopharmaceutical industry is poised for a recovery, fueled by multiple FDA approvals leading to a rebound in companies that have seen declines in market capitalization in previous quarters, such as Gilead Sciences and Bristol-Myers Squibb,” says GlobalData analyst.

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