Pharmaceuticals Stocks

Biogen Inc Valuation – July 2017 $BIIB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Biogen Inc (BIIB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Biogen Inc. is a biopharmaceutical company. The Company focuses on discovering, developing, manufacturing and delivering therapies to people living with serious neurological, rare and autoimmune diseases. The Company markets products, including TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for multiple sclerosis (MS), FUMADERM for the treatment of severe plaque psoriasis and SPINRAZA for the treatment of spinal muscular atrophy (SMA). It also has a collaboration agreement with Genentech, Inc. (Genentech), a member of the Roche Group, with respect to RITUXAN for the treatment of non-Hodgkin’s lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of CLL and follicular lymphoma, and other anti-CD20 therapies. The Company’s product candidate includes OCREVUS; Biosimilar adalimumab; Aducanumab; E2609; BIIB074; BAN2401; Opicinumab; CIRARA; BIIB061; BIIB054; BIIB067, and BIIB068.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BIIB – July 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $60,088,325,615 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.29 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 441.65% Pass
6. Moderate PEmg Ratio PEmg < 20 16.57 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.28 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.29 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.54 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $16.94
MG Growth Estimate 15.00%
MG Value $652.29
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $245.67
MG Value based on 0% Growth $144.01
Market Implied Growth Rate 4.04%
Current Price $280.81
% of Intrinsic Value 43.05%

Biogen Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of dividends.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.9 in 2013 to an estimated $16.94 for 2017.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.04% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Biogen Inc revealed the company was trading above its Graham Number of $165.2.  The company does not pay a dividend.  Its PEmg (price over earnings per share – ModernGraham) was 16.57, which was below the industry average of 28.67, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.23.

Biogen Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.23
Graham Number $165.20
PEmg 16.57
Current Ratio 2.29
PB Ratio 5.28
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $6,859,700,000
Total Current Liabilities $2,992,500,000
Long-Term Debt $5,952,700,000
Total Assets $21,195,900,000
Intangible Assets $7,715,600,000
Total Liabilities $9,716,900,000
Shares Outstanding (Diluted Average) 215,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $21.57
Dec2016 $16.93
Dec2015 $15.34
Dec2014 $12.37
Dec2013 $7.81
Dec2012 $5.76
Dec2011 $5.04
Dec2010 $3.94
Dec2009 $3.35
Dec2008 $2.65
Dec2007 $1.99
Dec2006 $0.63
Dec2005 $0.47
Dec2004 $0.07
Dec2003 -$4.92
Dec2002 $0.85
Dec2001 $1.78
Dec2000 $0.72
Dec1999 $0.47
Dec1998 $0.30
Dec1997 $0.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $16.94
Dec2016 $13.63
Dec2015 $11.08
Dec2014 $8.29
Dec2013 $5.90
Dec2012 $4.68
Dec2011 $3.89
Dec2010 $3.04
Dec2009 $2.34
Dec2008 $1.61
Dec2007 $0.61
Dec2006 -$0.25
Dec2005 -$0.58
Dec2004 -$0.83
Dec2003 -$0.93
Dec2002 $0.98
Dec2001 $0.93

Recommended Reading:

Other ModernGraham posts about the company

Biogen Inc Valuation – February 2016 Update $BIIB
13 Best Stocks For Value Investors This Week – 10/17/15
Biogen Inc. Valuation – October 2015 Update $BIIB
The Best Companies of the Pharmaceuticals Industry – August 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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