3 Biotech Companies that Remain Attractive

Published Thu, 03 Sep 2015 10:30 CET by DividendYields.org

One of the fastest-developing industries in the financial markets is biotechnology. One of the biggest challenges that the biotech companies face is high R&D costs and the need for a steady revenue stream to finance their operating activities while waiting for FDA drug approval. This makes them heavily reliant on the public markets to finance the development and manufacturing of innovative medicines.
On the upside, the biotech sector remains attractive for retail investors in spite of its high-risk. According to McKinsey, in December 2014, biotech companies accounted for the 20% of the entire pharma market with global revenues of $163 billion, while their annual growth rate was +8%, double than conventional pharmaceutical companies.
This article summarizes three mid and large-cap stocks trading in the Healthcare sector of the Biotechnology industry. Having revisited their strategies and focusing on R&D, all three companies are expected to continue to grow at a fast rate, paying higher dividends to retail investors.

Baxter, Bio-Techne and Gilead Sciences Price Performance vs. S&P 500 Year over Year Graph
Baxter International (NYSE: BAX) engages in the development, manufacturing and marketing of products for the cure of immune diseases as well as chronic and severe medical conditions. The most important milestone of the Deerfield-based biotech company in July 2015 was the corporate spin-off of the bioscience sector and the creation of Baxalta (NYSE: BXLT), a separate company that develops medicines for rare diseases and focuses on gene therapy. Baxter’s D/E ratio is below 2, however, the company is dealing with debt. Q2 2015 R&D spending increased 1%, reaching $292 million, however BAX has moved $5 billion of debt to the Baxalta balance sheet and has successfully dealt with another $1.1 of convertible bonds, thus lowering interest expenses to $30 million from $42 million (YoY -28.6%). The company’s decision to bring new products to the market over the next years, aiming to improve its positioning and long-term performance, is expected to leave room for a higher dividend given its low payout ratio. A beta of 0.31 makes BAX a safe investment.

Bio-Techne Corp. (Nasdaq: TECH) is a Minneapolis-based biotech company operating in the development, manufacturing and sale of biotech products and clinical diagnostic controls globally. The acquisition in June of Cliniqa Corporation, a company focussing on the clinical diagnostic market, is expected to boost TECH’s clinical control portfolio and improve its growth as Cliniqa has a proven track record of cash-oriented growth. In addition, the company is looking to go bigger in China, believing there is growth in the Chinese market. On the upside, TECH’s acquisition strategy is expected to create profitable opportunities that could boost profitability. On the downside, sharp fluctuations in the foreign exchange rates have reduced inventories in overseas markets, namely Japan and the Pacific, thus raising a red flag for TECH. The EPS of $1.28 is expected to average at $4.27 over the next 4 years, whereas the 5-years long-term annual growth is expected 12.5%. TECH’s D/E ratio of 0.23, far below 2, indicates that the company is not relying on debt financing, which is also reflected in the low payout ratio. A beta of 0.72 suggests a safe investment.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Baxter 37.23 34.50 43.44 7.91% -14.30% 20.31 9.30 1.44 0.31 12%
Bio-Techne 91.95 86.01 114.56 6.91% -19.74% 3.42 31.82 0.23 0.72 44%
Gilead Sciences 101.49 85.95 123.37 18.08% -17.74% 148.95 10.71 0.84 0.86 18%

Gilead Sciences (Nasdaq: GILD), headquartered in Foster City, CA, engages in the development and sale of innovative medicines for HIV and chronic hepatitis, but also cardiovascular and respiratory diseases and cancer. Q2 2015 U.S revenue reported 16% YoY growth reaching $5.6 billion, while European revenue reported 50% YoY growth in spite of the foreign exchange headwinds. The growth was driven by the launch of Harvoni hepatitis medicine across various markets around the world, the sustained growth of Sovaldi hepatitis medicine outside the U.S. and increased sales of GILD’s newer HIV single-tablet regimen. GILD’s highly differentiated product line and addition of new patients to its treatment program are both expected to improve its position and boost its growth. Analyst consensus estimates an average annual growth of 13.5% over the next five years and an average EPS of $11.26 up to 2016 (current EPS $9.53). A beta of 0.84 suggests a safe investment, leaving for a higher dividend (currently at $1.72) and long-term value for investors.
Stock name Dividend Yield
Gilead Sciences 3.76
Baxter International 1.02
Techne 0.68

Articles featuring Gilead Sciences (GILD):

Dividend Income Update September 2019

The beginning of every month is exciting for all dividend income investors as we look back at the previous month and see how much passive dividend income our portfolios generated. No doubt, these are the best posts to write and read online as it only provides further proof that dividend investing can work overtime and that anyone can create an ever-growing passive income stream. Looking back at my September totals, I see that my year over year progress is moving at a nice clip. Now that three... Read more

5%+ Dividend Yield Portfolio: Defensive Positioning Paying Off (Sep 2019 Review)

Musings September was full of mixed signals. On one hand, the S&P 500 retested its all-time high (and I had a killer +4.5% month). On the other hand, the wall of worry for this long economic expansion has never seemed more daunting (trade wars, impeachment, earnings recession, etc). As a pleasant change for those of us in the value/dividend space, September 2019 was the first time (in a long time) that value stocks really soared. Source: S&P Dow Jones Indices... Read more

Q3 2019 Dividend Portfolio Update: New September Dividend Record

September saw some heavy swings in the markets with Trump continuing to batter the Federal Reserve policy and now facing his own crisis as the Democrats have triggered the very real impeachment case. Noise from the trade talks frontier was very limited since upcoming talks are scheduled for early October and Trump made it quite clear that he does not need a deal before 2020. However, that statement came before economic manufacturing data sent stocks plunging in early October. One of the... Read more

Dividend Challenger Highlights: Week Of September 22

Introduction The Dividend Champions list is a monthly compilation of companies which have consistently increased their annual dividend payouts, and the latest edition may be found here. However, since this list is only produced once per month, the data in it can quickly get out of date. Furthermore, with close to 900 companies on the list, the sheer amount of data can quickly become overwhelming. In this weekly series, I highlight recent and upcoming dividend related activity for companies... Read more

The Retiree's Dividend Portfolio - Jane's August Update: Price Targets

When the market as a whole enters a rally like this, it can be difficult to take a deep breath and begin trimming certain positions as the thrill of rapidly increasing portfolio balances offers a temporary high. If you follow a strategy that is similar to mine then you know that I remain cautiously optimistic about the current rally but I am more focused on scanning the portfolio to find positions that need to be trimmed back because the window of opportunity is seldom open for long.... Read more