Biogen shares rose 5% to trade above the consensus price target following a BofA Securities price target increase, leaving investors to question whether the stock's valuation has run ahead of its fundamental growth trajectory. The move came as the broader healthcare sector gained while the Nasdaq Composite fell 3%.
BofA analysts raised their price target on Biogen to $244 from $219, maintaining a Neutral rating. They characterized the upcoming third quarter as "likely to be relatively quiet," suggesting limited catalysts for significant estimate revisions. This follows a similar move by TD Cowen on Wednesday, which raised its target to $250 from $225 while keeping a Buy rating. Despite these consecutive upgrades, Biogen now trades above both individual targets.
The stock's surge has pushed it past the average analyst price target, which stands at $247. This consensus figure has climbed 43% over the past year, rising from $173 to $247. Individual targets range from $175 to $310, meaning the most bullish analysts still see upside potential. However, the average analyst currently values the stock at approximately its current trading level.
Fundamentals show moderate growth. Second-quarter revenue increased 3% year-over-year to $2.7 billion. The company's growth portfolio, consisting of newer drugs, performed better, generating $1.06 billion in revenue, a 24% increase. Analysts project revenue growth of about 6% for the current year, slowing to 2% to 3% annually through 2028. BofA's assessment of a quiet quarter implies these estimates are unlikely to shift dramatically in the near term.
Valuation metrics indicate investors are paying a premium for Biogen's earnings. At Wednesday's close, the stock traded at 19 times forward earnings, compared to a five-year average of 14 times. After today's 5% gain, the multiple is closer to 20 times forward earnings, placing it near its five-year high.
Biogen will report third-quarter results before the open on Wednesday, Oct. 28. The company previously warned that charges for acquired research and development and milestones between $290 million and $320 million would reduce third-quarter earnings per share by $1.75 to $1.95. While a weak earnings figure is expected due to these one-time charges, another strong performance from the growth portfolio could provide the catalyst needed to justify further valuation expansion.