Biotechnology Stocks With Bullish Prospects

BOSTON (TheStreet) -- Biotechnology companies are rife with opportunity. And risk. The following biotech stocks may offer superlative rewards, according to TheStreet's quantitative equity model, which is more conservative than many research tools. Plus, sell-side analysts are overwhelmingly bullish on their prospects.

3. Cephalon

(CEPH)

develops products for the central nervous system, inflammatory diseases and oncology therapeutics.

Quarter

: Fourth-quarter profit multiplied 19 times to $97 million, or $1.23 a share, as revenue gained 6.5% to $575 million. The operating margin widened from 25% to 31%. Cephalon holds $1.6 billion of cash, translating to a quick ratio of 1.5, and $1.2 billion of debt, equating to a debt-to-equity ratio of 0.5.

Stock

: Cephalon gained 9.4% during the past year, underperforming U.S. indices. The stock trades at a price-to-projected-earnings ratio of 9.6, a 58% discount to its peer-group average. Its PEG ratio, a measure of value relative to expected growth, is low at 0.3. A PEG ratio below 1 implies cheap shares.

Consensus

: Of analysts covering Cephalon, 17, or 68%, advise purchasing its shares while eight recommend holding them.

Soleil Securities

expects the stock to climb 30% to $92.

UBS

,

Bank of America

and

JPMorgan

also rate it "buy."

TheStreet's

model projects the stock will hit $81.07.

Catalyst

: Full-year oncology sales gained 81% to $336 million, boosted by Treanda, Cephalon's lymphoma-treating drug. A pending acquisition of

Mepha

, a Swiss generic-pharmaceuticals specialist, is expected to double Cephalon's international business and add to full-year earnings per share.

2. Gilead Sciences

(GILD) - Get Report

develops therapeutics for life-threatening diseases. Gilead is a major biotech player, with a market value of $43 billion.

Quarter

: Fourth-quarter profit soared 43% to $802 million, or 87 cents, as revenue increased 42% to $2 billion. Gilead's operating margin expanded from 50% to 53%. Its balance sheet stores $1.7 billion of cash and $1.2 billion of debt. A quick ratio of 1.6 and debt-to-equity ratio of 0.2 reflect fiscal prudence.

Stock

: Gilead Sciences has returned 6.6% during the past year, lagging behind major benchmarks. The stock sells for a price-to-projected-earnings ratio of 12 and a price-to-cash-flow ratio of 14, 49% and 34% discounts to the industry average. Its PEG ratio of 0.6 indicates a bargain relative to expected growth.

Consensus

: Of the firms following Gilead, 25, or 76%, advocate purchasing its shares while six suggest holding and two say to sell them.

Sanford Bernstein

, arguably Wall Street's best research firm, forecasts the stock will advance 33% to $63.

Lazard Capital Markets

and

Citigroup

are also bullish.

Catalyst

: Gilead's antiviral franchise, most notably the Atripla and Truvada HIV treatments, continues to gain appeal. Sales jumped 27% in the latest quarter. Sales of Letairis, a treatment for pulmonary hypertension, expanded 44% to $52 million. Gilead collected $194 million of royalties on Tamiflu.

1. Alexion Pharmaceuticals

(ALXN) - Get Report

makes drugs for patients in severe disease states, including those with hematologic, cardiovascular and autoimmune disorders.

Quarter

: Fourth-quarter profit multiplied 15 times to $237 million, or $2.59, boosted by a non-recurring tax benefit. Non-GAAP earnings per share grew 35% to 31 cents. Revenue increased 43% to $111 million. Alexion's operating margin fell from 21% to 20%. It holds $176 million of cash and $11 million of debt.

Stock

: Alexion Pharmaceuticals has advanced 52% during the past 12 months, more than the

Dow Jones Industrial Average

, but less than the

S&P 500 Index

. The stock trades at a price-to-projected-earnings ratio of 22, on par with competitors' shares. It's cheap based on book value and sales.

Consensus

: Of analysts covering Alexion, 13, or 68%, rate its stock "buy" and the remaining six rate it "hold."

Piper Jaffray

projects a $65 price target, implying a 23% upside.

Thomas Weisel

and

Credit Suisse

also expect the stock to outperform its peers.

TheStreet's

stock model expects it to strike $68.87.

Catalyst

: Alexion's drug Soliris is the first FDA-approved treatment for chronic hemolysis, or red blood cell destruction. Hemolysis occurs as a result of PNH, a blood mutation stemming from a shortage of protective proteins. Soliris sales rocketed 49% to $389 million in 2009 and jumped 43% in the latest period.

-- Reported by Jake Lynch in Boston.