Intrinsic value of Lexicon Pharmaceuticals - LXRX

Previous Close

$9.65

  Intrinsic Value

$1.47

stock screener

  Rating & Target

str. sell

-85%

Previous close

$9.65

 
Intrinsic value

$1.47

 
Up/down potential

-85%

 
Rating

str. sell

We calculate the intrinsic value of LXRX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -36.15
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  83
  85
  87
  89
  91
  94
  97
  100
  104
  108
  112
  116
  121
  126
  132
  137
  143
  150
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248
  260
  272
Variable operating expenses, $m
 
  84
  85
  87
  90
  92
  95
  98
  102
  105
  109
  109
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  210
  221
  231
  242
  254
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  220
  84
  85
  87
  90
  92
  95
  98
  102
  105
  109
  109
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  210
  221
  231
  242
  254
Operating income, $m
  -137
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
EBITDA, $m
  -135
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Interest expense (income), $m
  6
  5
  -6
  -6
  -6
  -5
  -5
  -5
  -5
  -4
  -4
  -4
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  8
  9
Earnings before tax, $m
  -141
  -4
  7
  7
  7
  7
  7
  7
  7
  7
  7
  11
  11
  11
  11
  11
  11
  11
  11
  11
  11
  11
  10
  10
  10
  10
  10
  10
  10
  10
  9
Tax expense, $m
  0
  0
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
Net income, $m
  -141
  -4
  5
  5
  5
  5
  5
  5
  5
  5
  5
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  7
  7
  7
  7
  7
  7
  7

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  347
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  476
  132
  135
  138
  142
  146
  151
  156
  162
  168
  174
  181
  188
  196
  205
  213
  223
  233
  243
  254
  266
  278
  291
  305
  319
  335
  351
  367
  385
  404
  423
Adjusted assets (=assets-cash), $m
  129
  132
  135
  138
  142
  146
  151
  156
  162
  168
  174
  181
  188
  196
  205
  213
  223
  233
  243
  254
  266
  278
  291
  305
  319
  335
  351
  367
  385
  404
  423
Revenue / Adjusted assets
  0.643
  0.644
  0.644
  0.645
  0.641
  0.644
  0.642
  0.641
  0.642
  0.643
  0.644
  0.641
  0.644
  0.643
  0.644
  0.643
  0.641
  0.644
  0.642
  0.642
  0.643
  0.644
  0.643
  0.643
  0.643
  0.642
  0.641
  0.643
  0.644
  0.644
  0.643
Average production assets, $m
  74
  75
  77
  79
  81
  83
  86
  89
  92
  96
  99
  103
  107
  112
  117
  122
  127
  133
  139
  145
  151
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
Working capital, $m
  193
  -141
  -144
  -148
  -152
  -156
  -162
  -167
  -173
  -179
  -186
  -194
  -202
  -210
  -219
  -228
  -238
  -249
  -260
  -272
  -284
  -298
  -311
  -326
  -341
  -358
  -375
  -393
  -412
  -432
  -453
Total debt, $m
  101
  -100
  -97
  -94
  -90
  -86
  -82
  -77
  -72
  -67
  -61
  -55
  -48
  -41
  -34
  -26
  -17
  -9
  1
  11
  21
  32
  44
  56
  69
  83
  98
  113
  129
  145
  163
Total liabilities, $m
  318
  118
  121
  124
  128
  132
  136
  141
  146
  151
  157
  163
  170
  177
  184
  192
  201
  209
  219
  229
  239
  250
  262
  274
  287
  301
  316
  331
  347
  363
  381
Total equity, $m
  157
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  39
  40
  42
Total liabilities and equity, $m
  475
  131
  134
  138
  142
  147
  151
  157
  162
  168
  174
  181
  189
  197
  204
  213
  223
  232
  243
  254
  266
  278
  291
  304
  319
  334
  351
  368
  386
  403
  423
Debt-to-equity ratio
  0.643
  -7.560
  -7.190
  -6.780
  -6.350
  -5.900
  -5.430
  -4.960
  -4.470
  -3.990
  -3.510
  -3.040
  -2.570
  -2.110
  -1.650
  -1.210
  -0.790
  -0.370
  0.030
  0.420
  0.800
  1.160
  1.510
  1.850
  2.170
  2.480
  2.780
  3.070
  3.340
  3.600
  3.850
Adjusted equity ratio
  -1.473
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -141
  -4
  5
  5
  5
  5
  5
  5
  5
  5
  5
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  7
  7
  7
  7
  7
  7
  7
Depreciation, amort., depletion, $m
  2
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
Funds from operations, $m
  -220
  3
  12
  12
  12
  12
  12
  13
  13
  13
  13
  12
  12
  12
  12
  12
  12
  12
  13
  13
  13
  13
  13
  13
  14
  14
  14
  14
  14
  15
  15
Change in working capital, $m
  -44
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
Cash from operations, $m
  -176
  6
  15
  16
  17
  17
  18
  18
  19
  19
  20
  19
  20
  20
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
Maintenance CAPEX, $m
  0
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
New CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
Cash from investing activities, $m
  18
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -15
  -15
  -17
  -17
  -18
  -19
Free cash flow, $m
  -158
  2
  11
  11
  12
  12
  12
  12
  12
  13
  13
  12
  12
  12
  12
  13
  13
  13
  13
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
Issuance/(repayment) of debt, $m
  -2
  -185
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
Issuance/(repurchase) of shares, $m
  3
  191
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  6
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
Total cash flow (excl. dividends), $m
  -156
  8
  14
  15
  15
  16
  16
  17
  17
  18
  19
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
Retained Cash Flow (-), $m
  129
  -191
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
Prev. year cash balance distribution, $m
 
  331
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  148
  14
  14
  15
  15
  16
  16
  17
  17
  18
  17
  18
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  27
  28
  29
  30
  32
  33
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  142
  13
  12
  12
  12
  12
  11
  11
  10
  9
  8
  8
  7
  6
  6
  5
  5
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
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Lexicon Pharmaceuticals, Inc. is a biopharmaceutical company. The Company focuses on the development and commercialization of breakthrough treatments for human disease. Its drug programs include XERMELO (telotristat ethyl), sotagliflozin, LX2761 and LX9211. It also has a number of additional compounds into various stages of clinical and preclinical development. XERMELO is an orally-delivered small molecule compound approved by the Food and Drug Administration (FDA) for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog (SSA) therapy in adults inadequately controlled by SSA therapy. It is developing sotagliflozin, an orally-delivered small molecule drug candidate, as a treatment for type 1 and type 2 diabetes mellitus. LX2761 is an orally-delivered small molecule compound that it is developing for the treatment of diabetes. LX9211 is an orally-delivered small molecule compound that the Company is developing for the treatment of neuropathic pain.

FINANCIAL RATIOS  of  Lexicon Pharmaceuticals (LXRX)

Valuation Ratios
P/E Ratio -7.1
Price to Sales 12.1
Price to Book 6.4
Price to Tangible Book
Price to Cash Flow -5.7
Price to Free Cash Flow -5.7
Growth Rates
Sales Growth Rate -36.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio 22
Current Ratio 0
LT Debt to Equity 54.1%
Total Debt to Equity 64.3%
Interest Coverage -23
Management Effectiveness
Return On Assets -23.9%
Ret/ On Assets - 3 Yr. Avg. -16.7%
Return On Total Capital -43.6%
Ret/ On T. Cap. - 3 Yr. Avg. -26.4%
Return On Equity -63.7%
Return On Equity - 3 Yr. Avg. -36.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -160.2%
EBITDA Margin - 3 Yr. Avg. -192%
Operating Margin -165.1%
Oper. Margin - 3 Yr. Avg. -199.7%
Pre-Tax Margin -169.9%
Pre-Tax Margin - 3 Yr. Avg. -202.8%
Net Profit Margin -169.9%
Net Profit Margin - 3 Yr. Avg. -202.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

LXRX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LXRX stock intrinsic value calculation we used $83 million for the last fiscal year's total revenue generated by Lexicon Pharmaceuticals. The default revenue input number comes from 2016 income statement of Lexicon Pharmaceuticals. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LXRX stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LXRX is calculated based on our internal credit rating of Lexicon Pharmaceuticals, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lexicon Pharmaceuticals.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LXRX stock the variable cost ratio is equal to 98.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for LXRX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.9% for Lexicon Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Lexicon Pharmaceuticals. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LXRX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LXRX are equal to 88.6%.

Life of production assets of 59.3 years is the average useful life of capital assets used in Lexicon Pharmaceuticals operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LXRX is equal to -166.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $157 million for Lexicon Pharmaceuticals - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 105.735 million for Lexicon Pharmaceuticals is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lexicon Pharmaceuticals at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

▶ Lexicon reports 3Q loss   [Nov-08-17 07:49AM  Associated Press]
▶ Slashing Fair Value Estimate on Lexicon Pharmaceuticals   [Sep-14-17 05:16PM  Morningstar]
▶ Lexicon reports 2Q loss   [Aug-01-17 09:32PM  Associated Press]
▶ 3 Stocks That Could Be Life-Changers   [Jul-25-17 10:08AM  Motley Fool]
▶ 3 Top Healthcare Stocks You Haven't Thought Of   [Jun-18-17 09:07AM  Motley Fool]
▶ 3 Top-Performing Biotech Stocks This Week   [Jun-16-17 07:41AM  Motley Fool]
▶ Company News for June 12, 2017   [Jun-12-17 10:15AM  Zacks]
▶ Lexicon Pharmaceuticals Rises on Late-Stage Diabetes Trial   [Jun-09-17 08:45AM  24/7 Wall St.]
▶ Lexicon reports 1Q loss   [May-03-17 05:02AM  Associated Press]
▶ 3 Top Biotech Stocks to Buy in April   [Apr-03-17 04:23PM  Motley Fool]
▶ 3 Top Biotech Stocks to Buy in April   [04:23PM  at Motley Fool]
▶ What Does Big Pharma Want To Buy? 3 Drugmakers On Merger Track   [Mar-31-17 04:10PM  Investor's Business Daily]
Financial statements of LXRX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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