Akorn Inc Valuation – July 2018 $AKRX

Company Profile (excerpt from Reuters): Akorn Inc. (Akorn), incorporated on January 20, 1971, together with its subsidiaries, is a specialty generic pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals, as well as private-label over-the-counter (OTC) consumer health products and animal health pharmaceuticals. The Company operates through two segments: Prescription Pharmaceuticals and the Consumer Health. The Company is engaged in the development, manufacturing and marketing of generic pharmaceutical products in alternative dosage forms. It is focused on sterile and non-sterile dosage forms including, ophthalmics, injectables, oral liquids, otics, topicals, inhalants and nasal sprays. The Company’s Akorn Consumer Health division (ACH) markets a portfolio of OTC brands and various formulations of private-label OTC pharmaceutical products. Its OTC brand is TheraTears Therapy for Your Eyes, which is a family of therapeutic eye care products, including dry eye therapy lubricating eye drops, eyelid and eyelash cleansing foam and eye nutrition supplements.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AKRX – July 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 $2,140,267,723 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.64 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 308.57% Pass
6. Moderate PEmg Ratio PEmg < 20 37.82 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.72 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 4.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.48 Fail
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 $0.47
MG Growth Estimate 8.32%
MG Value $11.70
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $6.75
MG Value based on 0% Growth $3.96
Market Implied Growth Rate 14.66%
Current Price $17.60
% of Intrinsic Value 150.47%

Akorn, 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 over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and 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 $0.3 in 2014 to an estimated $0.47 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.66% 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 Akorn, Inc. revealed the company was trading above its Graham Number of $4.89. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 37.82, which was below the industry average of 40.6, 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 $-2.78.

Akorn, Inc. 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) -$2.78
Graham Number $4.89
PEmg 37.82
Current Ratio 4.64
PB Ratio 2.72
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $705,016,000
Total Current Liabilities $151,931,000
Long-Term Debt $816,499,000
Total Assets $1,863,472,000
Intangible Assets $822,458,000
Total Liabilities $1,052,956,000
Shares Outstanding (Diluted Average) 125,240,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.16
Dec2017 -$0.20
Dec2016 $1.47
Dec2015 $1.22
Dec2014 $0.13
Dec2013 $0.46
Dec2012 $0.32
Dec2011 $0.41
Dec2010 $0.22
Dec2009 -$0.28
Dec2008 -$0.09
Dec2007 -$0.22
Dec2006 -$0.09
Dec2005 -$0.49
Dec2004 -$1.80
Dec2003 -$0.62
Dec2002 -$0.66
Dec2001 -$0.78
Dec2000 -$0.13
Dec1999 $0.36
Dec1998 $0.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.47
Dec2017 $0.62
Dec2016 $0.92
Dec2015 $0.60
Dec2014 $0.30
Dec2013 $0.33
Dec2012 $0.22
Dec2011 $0.11
Dec2010 -$0.05
Dec2009 -$0.21
Dec2008 -$0.29
Dec2007 -$0.48
Dec2006 -$0.65
Dec2005 -$0.91
Dec2004 -$1.01
Dec2003 -$0.53
Dec2002 -$0.39

Recommended Reading:

Other ModernGraham posts about the company

Akorn Inc Valuation – December 2016 $AKRX
Akorn Inc. Analysis – Initial Coverage $AKRX

Other ModernGraham posts about related companies

Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY
Biogen Inc Valuation – June 2018 $BIIB
Mylan NV Valuation – June 2018 $MYL
Amgen Inc Valuation – June 2018 $AMGN
Celgene Corp Valuation – June 2018 $CELG
Allergan PLC Valuation – May 2018 $AGN
Incyte Corp Valuation – April 2018 $INCY
Regeneron Pharmaceuticals Inc Valuation – April 2018 $REGN
Alexion Pharmaceuticals Inc Valuation – April 2018 $ALXN

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.

Akorn Inc Valuation – December 2016 $AKRX

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 – December 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 Akorn Inc (AKRX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Akorn Inc., together with its subsidiaries, is a specialty pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals, as well as private-label over-the-counter (OTC) consumer health products and animal health pharmaceuticals. The Company operates through two segments: Prescription Pharmaceuticals and the Consumer Health. The Prescription Pharmaceuticals segment is engaged in manufacturing and marketing generic and branded prescription pharmaceuticals, including ophthalmics, injectables, oral liquids, otics, topical, inhalants and nasal sprays. The Consumer Health segment is engaged in manufacturing and marketing branded and private-label animal health and OTC products. The Company’s Akorn Consumer Health division (ACH) markets a portfolio of OTC brands and various formulations of private-label OTC pharmaceutical products. Its OTC brand is TheraTears Therapy for Your Eyes, which is a family of therapeutic eye care products.

AKRX Chart

AKRX data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AKRX – December 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 $2,643,882,038 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.14 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 -628.81% Fail
6. Moderate PEmg Ratio PEmg < 20 20.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.29 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 4.14 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.65 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

EPSmg $1.02
MG Growth Estimate 15.00%
MG Value $39.42
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $14.85
MG Value based on 0% Growth $8.70
Market Implied Growth Rate 6.05%
Current Price $21.10
% of Intrinsic Value 53.52%

Akorn, 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, the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, 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 Undervalued after growing its EPSmg (normalized earnings) from $0.22 in 2012 to an estimated $1.02 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.05% 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 above the price.

At the time of valuation, further research into Akorn, Inc. revealed the company was trading above its Graham Number of $16.05. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.61, which was below the industry average of 28.95, 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 $-4.01.

Akorn, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.01
Graham Number $16.05
PEmg 20.61
Current Ratio 4.14
PB Ratio 3.29
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $644,197,000
Total Current Liabilities $155,494,000
Long-Term Debt $808,675,000
Total Assets $1,960,911,000
Intangible Assets $1,094,655,000
Total Liabilities $1,150,915,000
Shares Outstanding (Diluted Average) 126,334,000

Earnings Per Share History

Next Fiscal Year Estimate $1.77
Dec2015 $1.22
Dec2014 $0.13
Dec2013 $0.46
Dec2012 $0.32
Dec2011 $0.41
Dec2010 $0.22
Dec2009 -$0.28
Dec2008 -$0.09
Dec2007 -$0.22
Dec2006 -$0.09
Dec2005 -$0.49
Dec2004 -$1.80
Dec2003 -$0.62
Dec2002 -$0.66
Dec2001 -$0.78
Dec2000 -$0.13
Dec1999 $0.36
Dec1998 $0.25
Dec1997 $0.11
Jun1996 $0.05

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.02
Dec2015 $0.60
Dec2014 $0.30
Dec2013 $0.33
Dec2012 $0.22
Dec2011 $0.11
Dec2010 -$0.05
Dec2009 -$0.21
Dec2008 -$0.29
Dec2007 -$0.48
Dec2006 -$0.65
Dec2005 -$0.91
Dec2004 -$1.01
Dec2003 -$0.53
Dec2002 -$0.39
Dec2001 -$0.18
Dec2000 $0.12

Recommended Reading:

Other ModernGraham posts about the company

Akorn Inc. Analysis – Initial Coverage $AKRX

Other ModernGraham posts about related companies

Regeneron Pharmaceuticals Inc Valuation – November 2016 $REGN
Merck & Co Inc Valuation – August 2016 $MRK
Mallinckrodt PLC Valuation – August 2016 $MNK
Vertex Pharmaceuticals Inc Valuation – August 2016 $VRTX
Amgen Inc Valuation – August 2016 $AMGN
Pfizer Inc Valuation – August 2016 $PFE
Abbott Laboratories Valuation – August 2016 $ABT
Johnson & Johnson Valuation – August 2016 $JNJ
Regeneron Pharmaceuticals Inc Valuation – August 2016 $REGN
AmerisourceBergen Corp Valuation – July 2016 $ABC

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.

Akorn Inc. Analysis – Initial Coverage $AKRX

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 5 Most Undervalued Companies for the Defensive Investor – July 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 Akorn Inc. (AKRX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Akorn Inc. (Akorn), together with its wholly owned subsidiaries, is a specialty pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals, as well as animal and over-the-counter (OTC) consumer health products. The Company specializes in sterile and non-sterile dosage forms, including ophthalmics, injectables, oral liquids, otics, topicals, inhalants and nasal sprays. The Company operates in two segments: Prescription Pharmaceuticals, which is engaged in the sale of branded and generic prescription pharmaceuticals, and Consumer Health, which is engaged in the sale of branded and private label consumer and animal health products. The Company operates pharmaceutical manufacturing facilities in Decatur, Illinois; Somerset, New Jersey; Amityville, New York, and Paonta Sahib, Himachal Pradesh, India, as well as a central distribution warehouse in Gurnee, Illinois, and an additional warehousing facility in Amityville, New York.

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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. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AKRX – August 2015

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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 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 Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 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 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 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

EPSmg 0.85
MG Growth Estimate 15.00%
MG Value $32.73
Opinion Overvalued
MG Value based on 3% Growth $12.33
MG Value based on 0% Growth $7.23
Market Implied Growth Rate 21.40%
Current Price $43.60
% of Intrinsic Value 133.23%

Akorn Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, the lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the lack of dividends and the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.11 in 2011 to an estimated $0.85 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 21.4% 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 below 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 Akorn Inc. (AKRX)?  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

AKRX charts August 2015

Net Current Asset Value (NCAV) -$7.50
PEmg 51.26
Current Ratio 3.68
PB Ratio 15.42
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $494,329,000
Total Current Liabilities $134,165,000
Long-Term Debt $1,117,017,000
Total Assets $1,906,901,000
Intangible Assets $1,242,133,000
Total Liabilities $1,520,150,000
Outstanding Shares 136,835,000

Earnings Per Share History

Next Fiscal Year Estimate $1.80
Dec14 $0.33
Dec13 $0.46
Dec12 $0.32
Dec11 $0.41
Dec10 $0.22
Dec09 -$0.28
Dec08 -$0.09
Dec07 -$0.22
Dec06 -$0.09
Dec05 -$0.49
Dec04 -$1.80
Dec03 -$0.62
Dec02 -$0.66
Dec01 -$0.78
Dec00 -$0.13
Dec99 $0.36
Dec98 $0.25
Dec97 $0.11
Jun96 $0.05

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.85
Dec14 $0.37
Dec13 $0.33
Dec12 $0.22
Dec11 $0.11
Dec10 -$0.05
Dec09 -$0.21
Dec08 -$0.29
Dec07 -$0.48
Dec06 -$0.65
Dec05 -$0.91
Dec04 -$1.01
Dec03 -$0.53
Dec02 -$0.39
Dec01 -$0.18
Dec00 $0.12

 

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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Eli Lilly and Co Valuation – January 2019 $LLY

Company Profile (excerpt from Reuters): Eli Lilly and Company, incorporated on January 17, 1901, is engaged in drug manufacturing business. The Company discovers, develops, manufactures and markets products in two segments: human pharmaceutical products and animal health products. The Company’s human pharmaceutical business segment sells medicines, which are discovered or developed by its scientists. Its animal health business segment operates through the Company’s Elanco division, which develops, manufactures and markets products for both food animals and companion animals. As of December 31, 2016, the Company manufactured and distributed its products through facilities in the United States, Puerto Rico and 14 other countries.

Downloadable PDF version of this valuation:

ModernGraham Valuation of LLY – January 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 $124,957,622,150 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -53.78% Fail
6. Moderate PEmg Ratio PEmg < 20 58.07 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.56 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 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.18 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.03
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $29.46
MG Value based on 0% Growth $17.27
Market Implied Growth Rate 24.78%
Current Price $117.99
% of Intrinsic Value N/A

Eli Lilly And Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $3.45 in 2014 to an estimated $2.03 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 24.78% 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 Eli Lilly And Co revealed the company was trading above its Graham Number of $28.18. The company pays a dividend of $2.08 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 58.07, which was above the industry average of 35.4. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.54.

Eli Lilly And Co 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) -$9.54
Graham Number $28.18
PEmg 58.07
Current Ratio 1.91
PB Ratio 8.56
Current Dividend $2.08
Dividend Yield 1.76%
Number of Consecutive Years of Dividend Growth 3

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $20,685,900,000
Total Current Liabilities $10,826,700,000
Long-Term Debt $11,674,700,000
Total Assets $44,625,100,000
Intangible Assets $3,619,400,000
Total Liabilities $30,474,200,000
Shares Outstanding (Diluted Average) 1,026,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.35
Dec2017 -$0.19
Dec2016 $2.58
Dec2015 $2.26
Dec2014 $2.23
Dec2013 $4.32
Dec2012 $3.66
Dec2011 $3.90
Dec2010 $4.58
Dec2009 $3.94
Dec2008 -$1.89
Dec2007 $2.71
Dec2006 $2.45
Dec2005 $1.81
Dec2004 $1.66
Dec2003 $2.37
Dec2002 $2.50
Dec2001 $2.55
Dec2000 $2.79
Dec1999 $2.46
Dec1998 $1.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.03
Dec2017 $1.66
Dec2016 $2.73
Dec2015 $2.96
Dec2014 $3.45
Dec2013 $4.07
Dec2012 $3.58
Dec2011 $3.24
Dec2010 $2.72
Dec2009 $1.80
Dec2008 $0.93
Dec2007 $2.30
Dec2006 $2.11
Dec2005 $2.02
Dec2004 $2.21
Dec2003 $2.50
Dec2002 $2.52

Recommended Reading:

Other ModernGraham posts about the company

Eli Lilly and Co. Valuation – March 2018 $LLY
Eli Lilly and Company Valuation – July 2016 $LLY
47 Companies in the Spotlight This Week – 5/16/15
Eli Lilly & Co. Annual Valuation – 2015 $LLY
58 Companies in the Spotlight This Week – 1/31/15

Other ModernGraham posts about related companies

Zoetis Inc Valuation – January 2019 $ZTS
Gilead Sciences Inc Valuation – January 2019 $GILD
Pfizer Inc Valuation – November 2018 $PFE
Nektar Therapeutics Valuation – November 2018 $NKTR
Merck & Co Inc Valuation – November 2018 $MRK
Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND
Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX

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.

Zoetis Inc Valuation – January 2019 $ZTS

Company Profile (excerpt from Reuters): Zoetis Inc., incorporated on July 25, 2012, is engaged in the discovery, development, manufacture and commercialization of animal health medicines and vaccines, with a focus on both livestock and companion animals. The Company has a business, commercializing products across eight core species: cattle, swine, poultry, sheep and fish (collectively, livestock) and dogs, cats and horses (collectively, companion animals), and within five product categories: anti-infectives, vaccines, parasiticides, medicated feed additives and other pharmaceuticals. The Company’s segments include the United States and International. Within each of these operating segments, it offers a product portfolio for both livestock and companion animal customers. As of December 31, 2016, the Company had approximately 300 product lines, including products for both livestock and companion animals across each of its product categories. As of December 31, 2016, the Company marketed its products to veterinarians and livestock producers located in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ZTS – January 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 $41,107,369,275 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.06 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 1571.05% Pass
6. Moderate PEmg Ratio PEmg < 20 43.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 19.62 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 4.06 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.10 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.95
MG Growth Estimate 15.00%
MG Value $75.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $28.25
MG Value based on 0% Growth $16.56
Market Implied Growth Rate 17.71%
Current Price $85.56
% of Intrinsic Value 114.08%

Zoetis Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.88 in 2014 to an estimated $1.95 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.71% 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 Zoetis Inc revealed the company was trading above its Graham Number of $15.55. The company pays a dividend of $0.42 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 43.92, which was above the industry average of 35.4. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.78.

Zoetis Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.78
Graham Number $15.55
PEmg 43.92
Current Ratio 4.06
PB Ratio 19.62
Current Dividend $0.42
Dividend Yield 0.49%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $4,076,000,000
Total Current Liabilities $1,003,000,000
Long-Term Debt $6,441,000,000
Total Assets $10,459,000,000
Intangible Assets $4,657,000,000
Total Liabilities $8,341,000,000
Shares Outstanding (Diluted Average) 485,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.95
Dec2017 $1.75
Dec2016 $1.65
Dec2015 $0.68
Dec2014 $1.16
Dec2013 $1.01
Dec2012 $0.87
Dec2011 $0.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.95
Dec2017 $1.38
Dec2016 $1.16
Dec2015 $0.88
Dec2014 $0.88
Dec2013 $0.64
Dec2012 $0.39
Dec2011 $0.13

Recommended Reading:

Other ModernGraham posts about the company

Zoetis Inc Valuation – March 2018 $ZTS
Zoetis Inc Valuation – June 2016 $ZTS
Zoetis Inc. Valuation – October 2015 Update $ZTS
The Best Companies of the Pharmaceuticals Industry – August 2015
The 16 Best Stocks For Value Investors This Week – 8/1/15

Other ModernGraham posts about related companies

Pfizer Inc Valuation – November 2018 $PFE
Nektar Therapeutics Valuation – November 2018 $NKTR
Merck & Co Inc Valuation – November 2018 $MRK
Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND
Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY

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.

Gilead Sciences Inc Valuation – January 2019 $GILD

Company Profile (excerpt from Reuters): Gilead Sciences, Inc., incorporated on June 22, 1987, is a research-based biopharmaceutical company that discovers, develops and commercializes medicines in areas of unmet medical need. The Company’s portfolio of products and pipeline of investigational drugs includes treatments for Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS), liver diseases, cancer, inflammatory and respiratory diseases and cardiovascular conditions. Its products include AmBisome, Atripla, Cayston, Complera/Eviplera, Descovy, Emtriva, Epclusa, Genvoya, Harvoni, Hepsera, Letairis, Odefsey, Ranexa, Sovaldi, Stribild, Truvada, Tybost, Vemlidy, Viread, Vitekta and Zydelig. The Company’s areas of focus include HIV; liver diseases, such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection; hematology/oncology; cardiovascular, and inflammation/respiratory diseases. The Company had operations in more than 30 countries, as of December 31, 2016. The Company, through its subsidiary Kite Pharma, Inc. (Kite), is engaged in the development of cancer immunotherapies. Kite is focused on chimeric antigen receptor (CAR) and T cell receptor (TCR) engineered cell therapies designed to empower the immune system’s ability to recognize and kill tumors. Kite’s pipeline includes axicabtagene ciloleucel, KTE-C19, Human anti-CD19 (2nd Gen), Humanized anti-CD19 Control CAR (3rd Gen), KITE-585 (anti-BCMA), KITE-796 (anti-CLL-1 Control CAR), MAGE A3/A6, KITE-718 (MAGE A3/A6), MAGE A3, HPV-16 E6 & E7, KITE-439 (HPV-16 E7), KRAS, SSX-2 and Neoantigens.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GILD – January 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 $87,772,115,026 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.45 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
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 293.60% Pass
6. Moderate PEmg Ratio PEmg < 20 9.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.85 Pass
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 3.45 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.99 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.87
MG Growth Estimate 13.56%
MG Value $244.68
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $99.60
MG Value based on 0% Growth $58.38
Market Implied Growth Rate 0.69%
Current Price $67.84
% of Intrinsic Value 27.73%

Gilead Sciences, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.61 in 2014 to an estimated $6.87 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.69% 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 above the price.

At the time of valuation, further research into Gilead Sciences, Inc. revealed the company was trading above its Graham Number of $44.37. The company pays a dividend of $2.08 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 9.88, which was below the industry average of 35.4, 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 $-4.88.

Gilead Sciences, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.88
Graham Number $44.37
PEmg 9.88
Current Ratio 3.45
PB Ratio 3.85
Current Dividend $2.08
Dividend Yield 3.07%
Number of Consecutive Years of Dividend Growth 3

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $34,918,000,000
Total Current Liabilities $10,116,000,000
Long-Term Debt $24,570,000,000
Total Assets $64,305,000,000
Intangible Assets $20,432,000,000
Total Liabilities $41,298,000,000
Shares Outstanding (Diluted Average) 1,307,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.60
Dec2017 $3.51
Dec2016 $9.94
Dec2015 $11.91
Dec2014 $7.35
Dec2013 $1.81
Dec2012 $1.64
Dec2011 $1.77
Dec2010 $1.66
Dec2009 $1.41
Dec2008 $1.03
Dec2007 $0.84
Dec2006 -$0.65
Dec2005 $0.43
Dec2004 $0.25
Dec2003 -$0.05
Dec2002 $0.04
Dec2001 $0.03
Dec2000 -$0.04
Dec1999 -$0.05
Dec1998 -$0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.87
Dec2017 $7.30
Dec2016 $8.31
Dec2015 $6.63
Dec2014 $3.61
Dec2013 $1.71
Dec2012 $1.61
Dec2011 $1.51
Dec2010 $1.20
Dec2009 $0.85
Dec2008 $0.51
Dec2007 $0.22
Dec2006 -$0.06
Dec2005 $0.21
Dec2004 $0.08
Dec2003 -$0.01
Dec2002 $0.01

Recommended Reading:

Other ModernGraham posts about the company

Most Undervalued Stocks of the S&P 500 – August 2018
10 Undervalued Stocks for the Enterprising Investor – August 2018
10 Undervalued Stocks for the Enterprising Investor – July 2018
10 Best Dividend Paying Stocks for the Enterprising Investor – May 2018
10 Stocks for Using A Benjamin Graham Value Investing Strategy – May 2018

Other ModernGraham posts about related companies

Pfizer Inc Valuation – November 2018 $PFE
Nektar Therapeutics Valuation – November 2018 $NKTR
Merck & Co Inc Valuation – November 2018 $MRK
Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND
Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY

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.

Pfizer Inc Valuation – November 2018 $PFE

Company Profile (excerpt from Reuters): Pfizer Inc. (Pfizer), incorporated on June 2, 1942, is a research-based global biopharmaceutical company. The Company is engaged in the discovery, development and manufacture of healthcare products. Its global portfolio includes medicines and vaccines, as well as consumer healthcare products. The Company manages its commercial operations through two business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). IH focuses on developing and commercializing medicines and vaccines that improve patients’ lives, as well as products for consumer healthcare. IH therapeutic areas include internal medicine, vaccines, oncology, inflammation and immunology, rare diseases and consumer healthcare. EH includes legacy brands, branded generics, generic sterile injectable products, biosimilars and infusion systems. EH also includes a research and development (R&D) organization, as well as its contract manufacturing business. As of December 31, 2016, the Company sold its products in over 125 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PFE – 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 $255,432,005,310 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.43 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 99.43% Pass
6. Moderate PEmg Ratio PEmg < 20 20.07 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 1.43 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.68 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.19
MG Growth Estimate 1.87%
MG Value $26.82
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $31.78
MG Value based on 0% Growth $18.63
Market Implied Growth Rate 5.78%
Current Price $43.99
% of Intrinsic Value 164.03%

Pfizer Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 $1.95 in 2014 to an estimated $2.19 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.78% 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 Pfizer Inc. revealed the company was trading above its Graham Number of $25. The company pays a dividend of $1.28 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.07, which was below the industry average of 36.89, 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 $-9.12.

Pfizer Inc. 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) -$9.12
Graham Number $25.00
PEmg 20.07
Current Ratio 1.43
PB Ratio 3.67
Current Dividend $1.28
Dividend Yield 2.91%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $41,583,000,000
Total Current Liabilities $29,013,000,000
Long-Term Debt $33,652,000,000
Total Assets $167,838,000,000
Intangible Assets $100,921,000,000
Total Liabilities $96,174,000,000
Shares Outstanding (Diluted Average) 5,986,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.33
Dec2017 $3.52
Dec2016 $1.17
Dec2015 $1.11
Dec2014 $1.42
Dec2013 $3.19
Dec2012 $1.94
Dec2011 $1.27
Dec2010 $1.02
Dec2009 $1.23
Dec2008 $1.20
Dec2007 $1.17
Dec2006 $2.66
Dec2005 $1.09
Dec2004 $1.49
Dec2003 $0.54
Dec2002 $1.46
Dec2001 $1.22
Dec2000 $0.59
Dec1999 $0.78
Dec1998 $0.73

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.19
Dec2017 $2.11
Dec2016 $1.52
Dec2015 $1.73
Dec2014 $1.95
Dec2013 $2.05
Dec2012 $1.43
Dec2011 $1.18
Dec2010 $1.24
Dec2009 $1.39
Dec2008 $1.49
Dec2007 $1.55
Dec2006 $1.64
Dec2005 $1.14
Dec2004 $1.13
Dec2003 $0.94
Dec2002 $1.08

Recommended Reading:

Other ModernGraham posts about the company

Pfizer Inc Valuation – February 2018 $PFE
Pfizer Inc Valuation – March 2017 $PFE
Pfizer Inc Valuation – August 2016 $PFE
Dividend Investors Should Research These 10 Stocks – July 2016
10 Companies for Enterprising Dividend Investors – June 2016

Other ModernGraham posts about related companies

Merck & Co Inc Valuation – November 2018 $MRK
Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND
Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY
Biogen Inc Valuation – June 2018 $BIIB
Mylan NV Valuation – June 2018 $MYL

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.

Nektar Therapeutics Valuation – November 2018 $NKTR

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

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

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

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Merck & Co Inc Valuation – November 2018 $MRK
Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND
Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY
Biogen Inc Valuation – June 2018 $BIIB
Mylan NV Valuation – June 2018 $MYL

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.

Merck & Co Inc Valuation – November 2018 $MRK

Company Profile (excerpt from Reuters): Merck & Co., Inc., incorporated in 1970, is a global healthcare company. The Company offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. It operates through four segments: Pharmaceutical, Animal Health, Healthcare Services and Alliances. The Company’s Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells its human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed healthcare providers, such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MRK – 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 $197,784,653,364 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.44 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -38.49% Fail
6. Moderate PEmg Ratio PEmg < 20 40.82 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.24 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 1.44 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.42 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.86
MG Growth Estimate -3.53%
MG Value $2.69
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $27.02
MG Value based on 0% Growth $15.84
Market Implied Growth Rate 16.16%
Current Price $76.06
% of Intrinsic Value 2832.36%

Merck & Co., Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. 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 seeing its EPSmg (normalized earnings) decline from $2.44 in 2014 to an estimated $1.86 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.16% 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 Merck & Co., Inc. revealed the company was trading above its Graham Number of $27.34. The company pays a dividend of $1.89 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 40.82, which was above the industry average of 36.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.57.

Merck & Co., Inc. 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) -$9.57
Graham Number $27.34
PEmg 40.82
Current Ratio 1.44
PB Ratio 6.24
Current Dividend $1.89
Dividend Yield 2.48%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $26,836,000,000
Total Current Liabilities $18,586,000,000
Long-Term Debt $19,936,000,000
Total Assets $85,130,000,000
Intangible Assets $30,433,000,000
Total Liabilities $52,474,000,000
Shares Outstanding (Diluted Average) 2,678,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.61
Dec2017 $0.87
Dec2016 $1.41
Dec2015 $1.56
Dec2014 $4.07
Dec2013 $1.47
Dec2012 $2.00
Dec2011 $2.02
Dec2010 $0.28
Dec2009 $5.65
Dec2008 $3.63
Dec2007 -$1.04
Dec2006 $2.03
Dec2005 $2.10
Dec2004 $2.62
Dec2003 $2.97
Dec2002 $3.14
Dec2001 $3.14
Dec2000 $2.90
Dec1999 $2.45
Dec1998 $2.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.86
Dec2017 $1.62
Dec2016 $2.03
Dec2015 $2.30
Dec2014 $2.44
Dec2013 $1.84
Dec2012 $2.26
Dec2011 $2.29
Dec2010 $2.32
Dec2009 $3.05
Dec2008 $1.79
Dec2007 $1.16
Dec2006 $2.37
Dec2005 $2.62
Dec2004 $2.91
Dec2003 $3.01
Dec2002 $2.93

Recommended Reading:

Other ModernGraham posts about the company

Merck & Co Inc Valuation – February 2018 $MRK
Merck & Co Inc Valuation – August 2016 $MRK
5 Overvalued Dow Components – July 2016
Merck & Co Inc Valuation – March 2016 $MRK
Merck & Co Valuation – November 2015 Update $MRK

Other ModernGraham posts about related companies

Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND
Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY
Biogen Inc Valuation – June 2018 $BIIB
Mylan NV Valuation – June 2018 $MYL
Amgen Inc Valuation – June 2018 $AMGN

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.

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

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

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

Other ModernGraham posts about related companies

Supernus Pharmaceuticals Inc Valuation – August 2018 $SUPN
Lannett Co Inc Valuation – August 2018 $LCI
Spectrum Pharmaceuticals Inc Valuation – August 2018 $SPPI
Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY
Biogen Inc Valuation – June 2018 $BIIB
Mylan NV Valuation – June 2018 $MYL
Amgen Inc Valuation – June 2018 $AMGN
Celgene Corp Valuation – June 2018 $CELG

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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