Does the share price for Regeneron Pharmaceuticals Inc (NASDAQ:REGN) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in December 2017 so be sure check the latest calculation for Regeneron Pharmaceuticals here.
Is REGN fairly valued?
I’ve used the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To start off, I use the analyst consensus estimates of REGN’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 10.76%. This resulted in a present value of 5-year cash flow of $8,790.9M. Keen to understand how I arrived at this number? Take a look at our detailed analysis here.
The infographic above illustrates how REGN’s earnings are expected to move in the future, which should give you an idea of REGN’s outlook. Secondly, I determine the terminal value, which is the business’s cash flow after the first stage. It’s appropriate to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes $23,861.8M.
The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is $32,652.6M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $305.48, which, compared to the current share price of $384.09, we see that Regeneron Pharmaceuticals is fair value, maybe slightly overvalued at the time of writing.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For REGN, I’ve compiled three relevant aspects you should look at:
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.