Pharmaceuticals Stocks

Incyte Corp Valuation – February 2019 $INCY

Company Profile (excerpt from Reuters): Incyte Corporation, incorporated on April 8, 1991, is a biopharmaceutical company. The Company is focused on the discovery, development and commercialization of therapeutics. The Company’s portfolio includes compounds in various stages, ranging from preclinical to late-stage development, and commercialized products, such as JAKAFI (ruxolitinib) and ICLUSIG (ponatinib). The Company has initiated REACH1, a pivotal Phase II trial in steroid-refractory acute graft-versus-host-disease (GVHD) and the first in a registration program for ruxolitinib in GVHD. A proof-of-concept trial of itacitinib, a selective janus associated kinases 1 (JAK1) inhibitor, is ongoing for the treatment of patients with acute GVHD.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of INCY – February 2019

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 $17,967,189,642 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.31 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 -89.95% Fail
6. Moderate PEmg Ratio PEmg < 20 482.41 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.41 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 4.31 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.01 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 $0.17
MG Growth Estimate 15.00%
MG Value $6.70
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $2.52
MG Value based on 0% Growth $1.48
Market Implied Growth Rate 236.96%
Current Price $83.94
% of Intrinsic Value 1253.02%

Incyte Corporation 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 $-0.32 in 2015 to an estimated $0.17 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 236.96% 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 Incyte Corporation revealed the company was trading above its Graham Number of $12.83. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 482.41, which was above the industry average of 39.51. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.15.

Incyte Corporation 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) $5.15
Graham Number $12.83
PEmg 482.41
Current Ratio 4.31
PB Ratio 9.41
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 12/1/2018
Total Current Assets $1,832,254,000
Total Current Liabilities $425,277,000
Long-Term Debt $17,434,000
Total Assets $2,645,762,000
Intangible Assets $370,957,000
Total Liabilities $719,795,000
Shares Outstanding (Diluted Average) 215,992,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.81
Dec2018 $0.51
Dec2017 -$1.53
Dec2016 $0.54
Dec2015 $0.03
Dec2014 -$0.29
Dec2013 -$0.56
Dec2012 -$0.34
Dec2011 -$1.49
Dec2010 -$0.26
Dec2009 -$2.06
Dec2008 -$1.99
Dec2007 -$1.03
Dec2006 -$0.89
Dec2005 -$1.24
Dec2004 -$2.21
Dec2003 -$2.33
Dec2002 -$2.03
Dec2001 -$2.77
Dec2000 -$0.47
Dec1999 -$0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.17
Dec2018 -$0.15
Dec2017 -$0.44
Dec2016 $0.03
Dec2015 -$0.32
Dec2014 -$0.53
Dec2013 -$0.75
Dec2012 -$0.97
Dec2011 -$1.31
Dec2010 -$1.23
Dec2009 -$1.62
Dec2008 -$1.43
Dec2007 -$1.28
Dec2006 -$1.52
Dec2005 -$1.92
Dec2004 -$2.16
Dec2003 -$1.97

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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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