Vertex Pharmaceuticals Inc Valuation – August 2016 $VRTX

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 – August 2016.  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 Vertex Pharmaceuticals Inc (VRTX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Vertex Pharmaceuticals Incorporated is engaged in the business of discovering, developing, manufacturing and commercializing medicines for serious diseases. The Company operates in pharmaceuticals segment. Its business is focused on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs in other indications. Its marketed medicines are ORKAMBI and KALYDECO, which are approved to treat patients with CF having specific mutations in their CF transmembrane conductance regulator (CFTR) gene. It has multiple development programs in the field of CF, including VX-661, VX-371, and VX-152 and VX-440. It is engaged in various other research and mid- and early-stage development programs, such as programs in the areas of oncology, pain and neurology. Its oncology drug candidates include VX-970, VX-803 and VX-984; pain drug candidates include VX-150 and VX-241, and acute spinal cord injury drug candidate include VX-210.

VRTX Chart

VRTX data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of VRTX – August 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 $23,974,743,678 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.33 Pass
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 -45.95% Fail
6. Moderate PEmg Ratio PEmg < 20 -63.54 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 24.19 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 2.33 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.09 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

VRTX value chart August 2016

EPSmg -$1.53
MG Growth Estimate 0.64%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$22.16
MG Value based on 0% Growth -$12.99
Market Implied Growth Rate -36.02%
Current Price $97.09
% of Intrinsic Value N/A

Vertex Pharmaceuticals Incorporated does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, 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 Overvalued after growing its EPSmg (normalized earnings) from $-1.6 in 2012 to an estimated $-1.53 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Vertex Pharmaceuticals Incorporated revealed the company was trading above its Graham Number of $1.89. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -63.54, which was below the industry average of 38.69, 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 $-0.46.

Vertex Pharmaceuticals Incorporated scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

VRTX charts August 2016

Net Current Asset Value (NCAV) -$0.46
Graham Number $1.89
PEmg -63.54
Current Ratio 2.33
PB Ratio 24.19
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $1,454,150,000
Total Current Liabilities $622,855,000
Long-Term Debt $74,921,000
Total Assets $2,548,982,000
Intangible Assets $334,724,000
Total Liabilities $1,567,628,000
Shares Outstanding (Diluted Average) 244,482,000

Earnings Per Share History

Next Fiscal Year Estimate $0.04
Dec2015 -$2.31
Dec2014 -$3.14
Dec2013 -$1.98
Dec2012 -$0.50
Dec2011 $0.14
Dec2010 -$3.77
Dec2009 -$3.71
Dec2008 -$3.27
Dec2007 -$3.03
Dec2006 -$1.83
Dec2005 -$2.28
Dec2004 -$2.12
Dec2003 -$2.56
Dec2002 -$1.43
Dec2001 -$0.89
Dec2000 -$0.51
Dec1999 -$0.80
Dec1998 -$0.65
Dec1997 -$0.41
Dec1996 -$1.07

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$1.53
Dec2015 -$2.06
Dec2014 -$1.91
Dec2013 -$1.52
Dec2012 -$1.60
Dec2011 -$2.34
Dec2010 -$3.43
Dec2009 -$3.11
Dec2008 -$2.71
Dec2007 -$2.41
Dec2006 -$2.08
Dec2005 -$2.09
Dec2004 -$1.83
Dec2003 -$1.53
Dec2002 -$0.97
Dec2001 -$0.71
Dec2000 -$0.64

Recommended Reading:

Other ModernGraham posts about the company

Vertex Pharmaceuticals Analysis – July 2015 Update $VRTX
Vertex Pharmaceuticals Annual Valuation – 2014 $VRTX

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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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