Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Regeneron Pharmaceuticals (NAS:REGN, 30-year Financials) shows every sign of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $485.18 per share and the market cap of $51.7 billion, Regeneron Pharmaceuticals stock is estimated to be modestly undervalued. GF Value for Regeneron Pharmaceuticals is shown in the chart below.


Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued
Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued

Because Regeneron Pharmaceuticals is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 13.4% over the past three years and is estimated to grow 15.34% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Regeneron Pharmaceuticals has a cash-to-debt ratio of 1.33, which ranks worse than 80% of the companies in Biotechnology industry. Based on this, GuruFocus ranks Regeneron Pharmaceuticals's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Regeneron Pharmaceuticals over the past years:

Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued
Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Regeneron Pharmaceuticals has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $8.5 billion and earnings of $30.67 a share. Its operating margin of 42.09% better than 96% of the companies in Biotechnology industry. Overall, GuruFocus ranks Regeneron Pharmaceuticals's profitability as strong. This is the revenue and net income of Regeneron Pharmaceuticals over the past years:

Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued
Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Regeneron Pharmaceuticals is 13.4%, which ranks better than 66% of the companies in Biotechnology industry. The 3-year average EBITDA growth is 22.5%, which ranks better than 68% of the companies in Biotechnology industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Regeneron Pharmaceuticals's ROIC is 31.25 while its WACC came in at 2.16. The historical ROIC vs WACC comparison of Regeneron Pharmaceuticals is shown below:

Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued
Regeneron Pharmaceuticals Stock Is Estimated To Be Modestly Undervalued

To conclude, the stock of Regeneron Pharmaceuticals (NAS:REGN, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 68% of the companies in Biotechnology industry. To learn more about Regeneron Pharmaceuticals stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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