Pharmaceuticals Stocks

Mylan NV Valuation – January 2016 Update $MYL

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 Most Undervalued Companies for the Defensive Investor – November 2015.  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 Mylan NV (MYL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Mylan N.V., formerly Mylan Inc., is a global pharmaceutical company, which develops, licenses, manufactures, markets and distributes generic, branded generic and specialty pharmaceuticals. Mylan operates in two segments: Generics and Specialty. The Company’s generic pharmaceutical business is conducted primarily in the United States and Canada (collectively, North America); Europe, the Middle East, and Africa (collectively, EMEA); and India, Australia, Japan and New Zealand (collectively, Asia Pacific). Its specialty pharmaceutical business is conducted by Mylan Specialty L.P. (Mylan Specialty). The Company’s API business is conducted through Mylan Laboratories Limited (Mylan India), which is included within the Asia Pacific region in its Generics Segment. Mylan provides products to customers in approximately 140 countries and territories.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MYL – January 2016

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 $26,508,680,713 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.76 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 776.71% Pass
6. Moderate PEmg Ratio PEmg < 20 26.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.79 Fail
Score
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 1.76 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.09 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

MYL value Chart January 2016

EPSmg $2.05
MG Growth Estimate 15.00%
MG Value $78.95
Opinion Undervalued
MG Value based on 3% Growth $29.73
MG Value based on 0% Growth $17.43
Market Implied Growth Rate 8.76%
Current Price $53.36
% of Intrinsic Value 67.59%

Mylan NV does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability in the last ten years, lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the net current assets as well as the lack of dividends.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.57 in 2011 to an estimated $2.05 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.76% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above 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 Mylan NV (MYL)?  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.

Stage 3: Information for Further Research

MYL Charts January 2016

Net Current Asset Value (NCAV) -$9.76
Graham Number $33.37
PEmg 26.02
Current Ratio 1.76
PB Ratio 2.79
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $6,485,900,000
Total Current Liabilities $3,684,100,000
Long-Term Debt $5,845,800,000
Total Assets $21,316,500,000
Intangible Assets $12,013,500,000
Total Liabilities $11,502,900,000
Shares Outstanding (Diluted Average) 514,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.48
Dec14 $2.34
Dec13 $1.58
Dec12 $1.52
Dec11 $1.22
Dec10 $0.68
Dec09 $0.30
Dec08 -$1.05
Mar07 $0.99
Mar06 $0.79
Mar05 $0.74
Mar04 $1.21
Mar03 $0.96
Mar02 $0.91
Mar01 $0.13
Mar00 $0.52
Mar99 $0.41
Mar98 $0.36
Mar97 $0.23
Mar96 $0.38

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.05
Dec14 $1.71
Dec13 $1.29
Dec12 $0.94
Dec11 $0.57
Dec10 $0.28
Dec09 $0.17
Dec08 $0.25
Mar07 $0.91
Mar06 $0.89
Mar05 $0.89
Mar04 $0.89
Mar03 $0.68
Mar02 $0.52
Mar01 $0.33
Mar00 $0.41
Mar99 $0.33

Recommended Reading:

Other ModernGraham posts about the company

32 Companies in the Spotlight This Week – 12/6/14
Mylan Inc. Annual Valuation – 2014 $MYL

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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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