Company Profile (excerpt from Reuters): Nektar Therapeutics, incorporated on June 3, 1998, is a biopharmaceutical company that discovers and develops medicines in areas of high unmet medical need. The Company’s research and development pipeline of new investigational drugs includes treatments for cancer, auto-immune disease and chronic pain. It leverages its chemistry platform to discover and design new drug candidates. These drug candidates utilize its polymer conjugate technology platforms, which are designed to enable the development of new molecular entities that target known mechanisms of action. Its programs include Immuno-oncology (I-O), Immunology, Pain-NKTR-181 and Oncology-ONZEALD.
Downloadable PDF version of this valuation:
ModernGraham Valuation of NKTR – November 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 | $6,585,892,527 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 13.93 | 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 | -194.44% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 40.97 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.67 | 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 | 13.93 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.18 | 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 | $0.93 |
| MG Growth Estimate | 15.00% |
| MG Value | $35.75 |
| Opinion | Fairly Valued |
| MG Grade | D |
| MG Value based on 3% Growth | $13.47 |
| MG Value based on 0% Growth | $7.89 |
| Market Implied Growth Rate | 16.24% |
| Current Price | $38.05 |
| % of Intrinsic Value | 106.42% |
Nektar Therapeutics 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 Fairly Valued after growing its EPSmg (normalized earnings) from $-1 in 2014 to an estimated $0.93 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 16.24% 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 within a margin of safety relative to the price.
At the time of valuation, further research into Nektar Therapeutics revealed the company was trading above its Graham Number of $7.28. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 40.97, which was above the industry average of 36.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.06.
Nektar Therapeutics scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $6.06 |
| Graham Number | $7.28 |
| PEmg | 40.97 |
| Current Ratio | 13.93 |
| PB Ratio | 3.67 |
| 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 | 9/1/2018 |
| Total Current Assets | $1,505,182,000 |
| Total Current Liabilities | $108,083,000 |
| Long-Term Debt | $246,514,000 |
| Total Assets | $2,249,098,000 |
| Intangible Assets | $76,501,000 |
| Total Liabilities | $458,976,000 |
| Shares Outstanding (Diluted Average) | 172,698,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.27 |
| Dec2017 | -$0.62 |
| Dec2016 | -$1.10 |
| Dec2015 | -$0.61 |
| Dec2014 | -$0.42 |
| Dec2013 | -$1.40 |
| Dec2012 | -$1.50 |
| Dec2011 | -$1.19 |
| Dec2010 | -$0.40 |
| Dec2009 | -$1.11 |
| Dec2008 | -$0.37 |
| Dec2007 | -$0.36 |
| Dec2006 | -$1.72 |
| Dec2005 | -$2.15 |
| Dec2004 | -$1.30 |
| Dec2003 | -$0.84 |
| Dec2002 | -$1.94 |
| Dec2001 | -$4.71 |
| Dec2000 | -$2.32 |
| Dec1999 | -$1.13 |
| Dec1998 | -$0.59 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.93 |
| Dec2017 | -$0.77 |
| Dec2016 | -$0.90 |
| Dec2015 | -$0.87 |
| Dec2014 | -$1.00 |
| Dec2013 | -$1.23 |
| Dec2012 | -$1.07 |
| Dec2011 | -$0.80 |
| Dec2010 | -$0.67 |
| Dec2009 | -$0.91 |
| Dec2008 | -$0.94 |
| Dec2007 | -$1.24 |
| Dec2006 | -$1.65 |
| Dec2005 | -$1.80 |
| Dec2004 | -$1.83 |
| Dec2003 | -$2.12 |
| Dec2002 | -$2.56 |
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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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