Pharmaceuticals Stocks

Biogen IDEC Inc. Quarterly Valuation – July 2014 $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 5 Highest Dividend Yields Among Undervalued Companies for the Enterprising Investor.  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 specific look at how Biogen IDEC Inc. (BIIB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Biogen Idec Inc. (Biogen Idec) is a global biotechnology company. The Company discovers, develops, manufactures and markets therapies for the treatment of neurodegenerative diseases, hemophilia and autoimmune disorders. The Company’s products include AVONEX, TYSABRI, FAMPYRA, FUMADERM and RITUXAN. In September 2011, the Company acquired from the Dompe Group the noncontrolling interests in its joint venture sales affiliates in Italy and Switzerland. In April 2013, Elan Corporation, plc closed the TYSABRI (natalizumab) Collaboration Transaction with Biogen Idec. BIIB Chart

BIIB data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $330.50
MG Value $300.02
MG Opinion Overvalued
Value Based on 3% Growth $112.99
Value Based on 0% Growth $66.24
Market Implied Growth Rate 16.96%
Net Current Asset Value (NCAV) $1.83
PEmg 42.41
Current Ratio 2.21
PB Ratio 8.55

Balance Sheet – 3/31/2014

Current Assets $3,525,000,000
Current Liabilities $1,594,200,000
Total Debt $591,000,000
Total Assets $12,230,100,000
Intangible Assets $5,597,300,000
Total Liabilities $3,093,400,000
Outstanding Shares 236,330,000

Earnings Per Share

2014 (estimate) $10.87
2013 $7.81
2012 $5.76
2011 $5.04
2010 $3.94
2009 $3.35
2008 $2.65
2007 $1.99
2006 $0.62
2005 $0.46
2004 $0.07

Earnings Per Share – ModernGraham

2014 (estimate) $7.79
2013 $5.90
2012 $4.68
2011 $3.89
2010 $3.04
2009 $2.33

Conclusion:

Biogen qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the short dividend record and the high PEmg and PB ratios, while the Enterprising Investor’s only concern is the lack of dividend payments. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities such as through a review of ModernGraham’s valuation of Abbvie (ABBV) and ModernGraham’s valuation of Pfizer Inc. (PFE). This level of demonstrated growth does not support the market’s implied estimate of 16.96% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Biogen IDEC Inc. (BIIB)? Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Biogen IDEC Inc. (BIIB) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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