Companies contributing to the fight against COVID-19 have received a lot of attention in the last year, but not all of their stocks have soared. For some businesses, the pandemic is providing an opportunity to launch their first commercial product, and the shares of some of those have gone through the roof.
But for companies that already had substantial revenue before the crisis hit, the additional business from the pandemic was less transformational, and investors haven't shown as much love for their stocks. The market seems to discount any revenue from products and services related to COVID-19 as a one-shot deal, destined to vanish once the pandemic subsides.
Investors could be overlooking some major opportunities. Below are three stocks of profitable and growing companies that would be long-term buys even without coronavirus-related business. And the market is underestimating the value of that new business as well.
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Regeneron Pharmaceuticals
At the top of my list of coronavirus bargains is Regeneron Pharmaceuticals (REGN 0.32%). The company specializes in antibody medicines, which the company is developing to fight a broad range of inflammatory, ophthalmological, cardiovascular, and infectious diseases, as well as cancer. It developed REGN-COV2, the antibody cocktail used to treat President Trump.
Regeneron's business is growing at a 30% clip even without REGN-COV2. The company's diabetic eye disease drug had $7.9 billion in sales in 2020, but most of the near-term growth will come from inflammation drug Dupixent, which grew sales 75% last year to a total of $4.0 billion. The company's pipeline is loaded, too. It has eight phase 3 clinical trials underway, 12 in phase 2, and 15 in phase 1. The U.S. Food and Drug Administration is expected to deliver a decision on Evkeeza, a drug to treat a rare metabolic disease, on Feb. 11.
But even as REGN-COV2 has gotten more valuable in recent weeks, the share price has remained stagnant. Operation Warp Speed ordered 300 million doses of the antibody cocktail last year. In January, it agreed to buy another 1.25 billion doses. That's a deal worth as much as $2.625 billion in the first half of 2021. Not bad, considering the company had only $8.5 billion in revenue all last year.
Shares of Regeneron are up a modest 40% since a year ago and sell for 20 times 2020 earnings, which had minimal contribution from REGN-COV2. The stock is a steal at 13 times analyst estimates for 2021 earnings, compared with a forward multiple of 22 for the S&P 500.
Emergent BioSolutions
Emergent BioSolutions (EBS 9.68%) specializes in drugs, vaccines, and medical devices to counter public health threats. Its business of selling countermeasures for chemical and biological warfare to the U.S. government has been growing and profitable for years. It also sells Narcan nasal spray, which first responders use to treat opioid overdose.
But the most promising near-term growth engine for the Emergent is turning out to be a new business in contract development and manufacturing services (CDMO). The company sells a service to help drug companies manufacture products, which turned out to be the perfect place to be when the world suddenly needed to manufacture billions of doses of COVID-19 vaccine. The CDMO segment amounted to only 7% of 2019 revenue at $80 million, but Emergent estimates that it will bring in between $925 million and $965 million in 2021, or 47% of revenue. The company has contracts for vaccine manufacture with the government, Johnson & Johnson, AstraZeneca, and Novavax.
Emergent's strong cash generation has allowed it to grow revenue at a 33% compound annual growth rate between 2016 and 2020, thanks to acquisitions and investments in research and development. The company is guiding to 29% revenue growth in 2021, and analysts are predicting a 27% increase in earnings per share. The stock is selling for 13 times the consensus estimate for 2021 EPS.
Pfizer
Ironically, the best bargain among coronavirus stocks may be one that has received the most press attention in recent months. Pfizer (PFE 2.40%), along with its German partner BioNTech got to market early with its mRNA COVID-19 vaccine, BNT162b2, but investors have yet to give it any credit at all for the huge business that will result.
Pfizer expects to sell $15 billion of BNT162b2 in 2021, earning over $4 billion in adjusted income from the vaccine. Given that the company earned $12.5 billion in adjusted income on revenue of $42 billion in 2020, that's a huge boost to results. The company believes it's not a one-time windfall, either. The emergence of variants likely means that updated vaccines will be required for years. Pfizer is charging a "pandemic price" of $19.50 per dose for BNT162b2 but has hinted that it may boost the price in future years to something closer to its normal vaccine price of $150 to $175.
Despite the piles of cash that the vaccine will produce, Pfizer's stock is selling for about what it did when the pandemic started. But the growth prospects for the rest of the company's business have improved in the meantime, too. It spun off its low-growth Upjohn business to form Viatris, leaving it with a strong growth portfolio in oncology and rare diseases along with important pipeline assets in inflammation, metabolic disease, cancer, and vaccines. Pfizer expects adjusted EPS to grow 15% in 2021 excluding BNT162b2, and 42% including it.
Pfizer shares would be a bargain even without a coronavirus vaccine, selling for 14 times the company's estimate of what the rest of the business will earn in 2021. But those vaccine profits are real money, and investors can buy this high-quality pharmaceutical stock at 11 times guidance for total 2021 adjusted EPS, and bank a 4.5% dividend while waiting for the market to recognize the value in the shares.
