On May 6, 2024, Vertex Pharmaceuticals Incorporated (VRTX), a pharmaceutical company pioneering in the field of Cystic Fibrosis (CF), reported solid first-quarter results as the company saw progress in its R&D pipeline. Its net product revenues increased 13.3% year-over-year to $2.69 billion, while its non-GAAP operating income surged 48.1% from the prior-year quarter to $1.34 billion.

Additionally, its non-GAAP net income came in at $1.24 billion or $4.76 per common share, representing more than a 56% year-over-year increase. However, as of March 31, 2024, VRTX’s cash and cash equivalents and marketable securities amounted to $10.17 billion, down from $11.22 billion as of December 31, 2023.

Moreover, the company comprehensively surpassed Wall Street’s EPS and revenue estimates. For the first quarter, VRTX’s earnings per share was 17.2% above the consensus estimate, and its revenue was 4.3% higher than the analysts’ estimates. It is no surprise that VRTX’s strong earnings have topped the EPS estimates in each of the past consecutive four quarters.

Shares of VRTX have gained 18.8% over the past nine months and 17.9% over the past year to close the last trading session at $410.24.

Here are the fundamental aspects of VRTX that could influence its price performance in the near term:

Positive Developments

Last month, the company entered into a definitive agreement to acquire Alpine Immune Sciences, Inc. (ALPN) for approximately $4.9 billion in cash. This deal includes obtaining povetacicept, a Phase 3-ready asset known for its potential in treating IgA nephropathy and its status as a potential pipeline-in-a-product.

VRTX's CEO, Reshma Kewalramani, views the acquisition as strategically advantageous, as it aligns with The company's mission to address unmet needs in specialty markets. Further, this move aims to integrate ALPN's protein engineering and immunotherapy capabilities into the VRTX's portfolio.

On top of this, VRTX reached a clinical milestone for VX-670 in DM1 in the first quarter of 2024, triggering a $75 million milestone payable to Entrada.

Favorable Analyst Estimates

The consensus revenue estimate of $2.66 billion for the fiscal second quarter (ending June 2024) represents a 6.7% increase year-over-year. The consensus EPS estimate of $4.17 for the current quarter indicates a 7.2% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.

VRTX’s revenue and EPS for the current year (ending December 2024) are expected to grow 9% and 11.6% year-over-year to $10.75 billion and $17.02, respectively. Looking ahead, analysts forecast an 8.8% and 6.7% year-over-year growth in VRTX’s revenue and EPS for fiscal year 2025, projecting figures of $11.70 billion and $18.16, respectively.

Discounted Valuation

In terms of forward non-GAAP PEG, VRTX is currently trading at 0.75x, 60.5% lower than the industry average of 1.89x. Its forward P/E multiple of 26.19 is 4.5% lower than the industry average of 27.53x.

In addition, the stock’s trailing-12-month EV/EBIT of 20.50x is 9.6% lower than the 23.18x industry average.

Robust Profitability

VRTX’s trailing-12-month EBITDA margin of 44.87% is 728.8% higher than the 5.41% industry average. The stock’s trailing-12-month levered FCF margin of 35.57% is significantly higher than the 0.53% industry average.

Further, its trailing-12-month net income margin, ROCE, and ROTA of 39.46%, 24.38%, and 16.81% compares to the negative industry averages of 5.52%, 40.87%, and 29.54%, respectively.

POWR Ratings Exhibit Solid Prospects

VRTX’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories.

VRTX boasts a B grade for Value, mirroring its discounted valuation. Additionally, it also earns a B for Quality, reflecting its superior profitability metrics compared to industry standards.

The stock is ranked #8 out of 359 stocks in the Biotech industry. Click here to access VRTX’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

VRTX kicked off the year on a strong note, with sharp increases in profits and revenue in the first quarter, primarily fueled by the robust uptake of Trikafta among younger patients. Moreover, the anticipation of regulatory approvals for VRTX’s therapies across various global regions signals a promising outlook for the company's expansion and market reach.

Additionally, the company's reaffirmed revenue guidance for fiscal year 2024 (total product revenues are expected to range from $10.55 billion to $10.75 billion) reflects a confident outlook for sustained growth in the cystic fibrosis sector, alongside the potential introduction of Casgevy in new indications and markets.

Plus, the activation of treatment centers for Casgevy and the collection of cells from patients for its commercial launch in sickle cell disease and transfusion-dependent Beta-thalassemia are some promising developments.

Given these factors, coupled with robust profitability, optimistic analyst estimates, and discounted valuation underscore the company’s strong financial position and the potential for future earnings growth.

Hence, we believe that investing in this stock could help you garner substantial returns.

How does Vertex Pharmaceuticals Incorporated (VRTX) Stack Up Against its Peers?

Other stocks in the Biotech sector that may be worth considering are Sino Biopharmaceutical Limited (SBHMY), Gilead Sciences, Inc. (GILD), and Otsuka Holdings Co., Ltd. (OTSKY) - they have an overall rating of A (Strong Buy). Click here to explore more Biotech stocks.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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VRTX shares were trading at $423.48 per share on Wednesday afternoon, up $13.24 (+3.23%). Year-to-date, VRTX has gained 4.08%, versus a 9.10% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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