HSBC Downgrades Biogen (BIIB) to Reduce

HSBC analyst Rajesh Kumar downgraded Biogen (NASDAQ: BIIB) from Hold to Reduce with a price target of $143.00 (from $144.00).

The analyst comments: "We derive our revised target price of USD143 (from USD144) using an APV analysis. Our target price is based on a WACC of 7.5% (earlier 8.0%). Our WACC is based on RFR of 4.25% (unchanged), ERP of 4.00% (unchanged), Biopharma sector premium of 0.75% (unchanged), ESG premium of 0.25% (earlier 1.00%) and a beta of 0.80 (unchanged). Our target price of USD143 implies downside of 20.6%. We downgrade to Reduce rating from (Hold earlier). We see Biogen as a mid-rated company with negative growth disproportionally dependent on a royalty stream that is coming to an end. We have now adjusted gross margin for a declining CD20 royalty stream (from 2029) that will require further cost realignment, which in turn would weigh on growth or alternatively trigger the associated margin pressure. Assuming 100% royalty margin it accounts for over half of operating profit, requiring M&A, on which we have no visibility, to restore growth."

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Shares of Biogen closed at $175.84 yesterday.

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