Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND

Company Profile (excerpt from Reuters): Ligand Pharmaceuticals Incorporated (Ligand), incorporated on September 28, 1987, is a biopharmaceutical company that focuses on developing and acquiring technologies that help pharmaceutical companies discover and develop medicines. The Company is involved in the development and licensing of biopharmaceutical assets. The Company employs research technologies, such as nuclear receptor assays, high throughput computer screening, formulation science, liver targeted pro-drug technologies and antibody discovery technologies to assist companies in their work towards obtaining prescription drug approvals. As of December 31, 2016, it had partnerships and license agreements with over 85 pharmaceutical and biotechnology companies, and over 140 various programs under license with it were in various stages of commercialization and development. It has contributed research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections and low blood platelets, among others. Its partners have programs in clinical development targeting seizure, coma, cancer, diabetes, cardiovascular disease, muscle wasting, liver disease and kidney disease, among others. The Company is developing a small molecule glucagon receptor antagonist for the treatment of Type II diabetes mellitus.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LGND – September 2018

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 $5,371,771,546 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.34 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 -5378.57% Fail
6. Moderate PEmg Ratio PEmg < 20 64.93 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.04 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 2.34 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.70 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

EPSmg $3.92
MG Growth Estimate 15.00%
MG Value $150.92
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $56.84
MG Value based on 0% Growth $33.32
Market Implied Growth Rate 28.22%
Current Price $254.54
% of Intrinsic Value 168.66%

Ligand Pharmaceuticals Inc. 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, and 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 $0.36 in 2014 to an estimated $3.92 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 28.22% 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 below the price.

At the time of valuation, further research into Ligand Pharmaceuticals Inc. revealed the company was trading above its Graham Number of $54.33. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 64.93, which was above the industry average of 41.98. Finally, the company was trading above its Net Current Asset Value (NCAV) of $9.9.

Ligand Pharmaceuticals Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $9.90
Graham Number $54.33
PEmg 64.93
Current Ratio 2.34
PB Ratio 10.04
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 6/1/2018
Total Current Assets $1,480,470,000
Total Current Liabilities $632,850,000
Long-Term Debt $595,912,000
Total Assets $1,858,284,000
Intangible Assets $328,399,000
Total Liabilities $1,238,471,000
Shares Outstanding (Diluted Average) 24,438,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.94
Dec2017 $0.53
Dec2016 -$0.08
Dec2015 $10.83
Dec2014 $0.56
Dec2013 $0.55
Dec2012 -$0.03
Dec2011 $0.49
Dec2010 -$0.53
Dec2009 -$0.10
Dec2008 -$6.18
Dec2007 $17.22
Dec2006 -$2.34
Dec2005 -$2.94
Dec2004 -$3.66
Dec2003 -$8.16
Dec2002 -$4.56
Dec2001 -$4.32
Dec2000 -$8.10
Dec1999 -$9.48
Dec1998 -$17.52

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.92
Dec2017 $2.43
Dec2016 $3.04
Dec2015 $3.90
Dec2014 $0.36
Dec2013 $0.20
Dec2012 -$0.41
Dec2011 $0.33
Dec2010 $0.70
Dec2009 $1.25
Dec2008 $1.43
Dec2007 $3.50
Dec2006 -$3.69
Dec2005 -$4.48
Dec2004 -$5.42
Dec2003 -$6.51
Dec2002 -$6.72

Recommended Reading:

Other ModernGraham posts about the company

Ligand Pharmaceuticals Inc Valuation – Initial Coverage $LGND

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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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