Intrinsic value of Pacific Biosciences of California - PACB

Previous Close

$4.40

  Intrinsic Value

$0.18

stock screener

  Rating & Target

str. sell

-96%

Previous close

$4.40

 
Intrinsic value

$0.18

 
Up/down potential

-96%

 
Rating

str. sell

We calculate the intrinsic value of PACB 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 0.5

 

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, %
  -2.15
  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
  91
  93
  95
  97
  100
  103
  107
  110
  114
  118
  123
  128
  133
  138
  144
  150
  157
  164
  171
  179
  187
  196
  205
  215
  225
  236
  247
  259
  272
  285
  299
Variable operating expenses, $m
 
  121
  124
  127
  131
  135
  139
  144
  149
  155
  161
  167
  174
  181
  189
  197
  205
  215
  224
  234
  245
  257
  269
  281
  294
  309
  323
  339
  355
  372
  390
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
  162
  121
  124
  127
  131
  135
  139
  144
  149
  155
  161
  167
  174
  181
  189
  197
  205
  215
  224
  234
  245
  257
  269
  281
  294
  309
  323
  339
  355
  372
  390
Operating income, $m
  -71
  -29
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
EBITDA, $m
  -67
  -26
  -27
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
Interest expense (income), $m
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
Earnings before tax, $m
  -74
  -31
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -109
Tax expense, $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
  0
Net income, $m
  -74
  -31
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -109

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  72
  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
  138
  67
  69
  71
  73
  75
  77
  80
  83
  86
  89
  93
  96
  100
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
Adjusted assets (=assets-cash), $m
  66
  67
  69
  71
  73
  75
  77
  80
  83
  86
  89
  93
  96
  100
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
Revenue / Adjusted assets
  1.379
  1.388
  1.377
  1.366
  1.370
  1.373
  1.390
  1.375
  1.373
  1.372
  1.382
  1.376
  1.385
  1.380
  1.371
  1.376
  1.377
  1.378
  1.379
  1.377
  1.375
  1.380
  1.376
  1.378
  1.380
  1.380
  1.380
  1.378
  1.381
  1.383
  1.384
Average production assets, $m
  12
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
Working capital, $m
  75
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
Total debt, $m
  16
  17
  18
  20
  21
  23
  25
  27
  29
  32
  35
  37
  40
  44
  47
  51
  54
  59
  63
  67
  72
  77
  83
  88
  94
  100
  107
  114
  121
  129
  137
Total liabilities, $m
  53
  54
  55
  57
  58
  60
  62
  64
  66
  69
  72
  74
  77
  81
  84
  88
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
Total equity, $m
  85
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
Total liabilities and equity, $m
  138
  67
  69
  71
  72
  75
  77
  80
  82
  86
  90
  92
  96
  101
  105
  109
  113
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  207
  217
Debt-to-equity ratio
  0.188
  1.290
  1.350
  1.420
  1.490
  1.570
  1.640
  1.720
  1.810
  1.890
  1.970
  2.050
  2.130
  2.200
  2.280
  2.350
  2.430
  2.500
  2.570
  2.630
  2.690
  2.760
  2.810
  2.870
  2.930
  2.980
  3.030
  3.080
  3.120
  3.170
  3.210
Adjusted equity ratio
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197
  0.197

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -74
  -31
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -109
Depreciation, amort., depletion, $m
  4
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Funds from operations, $m
  -86
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -79
  -83
  -87
  -91
  -96
  -101
Change in working capital, $m
  -18
  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 from operations, $m
  -68
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -97
  -101
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
New CAPEX, $m
  -8
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Cash from investing activities, $m
  -15
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -9
  -9
  -9
Free cash flow, $m
  -83
  -31
  -32
  -33
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Issuance/(repurchase) of shares, $m
  66
  31
  32
  33
  34
  35
  36
  38
  39
  41
  43
  44
  46
  49
  51
  53
  56
  59
  61
  64
  68
  71
  75
  78
  82
  86
  91
  95
  100
  105
  111
Cash from financing (excl. dividends), $m  
  66
  32
  33
  34
  36
  37
  38
  40
  41
  43
  46
  47
  49
  52
  54
  57
  60
  63
  65
  69
  73
  76
  80
  84
  88
  92
  98
  102
  107
  113
  119
Total cash flow (excl. dividends), $m
  -17
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Retained Cash Flow (-), $m
  -11
  -31
  -32
  -33
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -68
  -71
  -75
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -111
Prev. year cash balance distribution, $m
 
  72
  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
 
  42
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -93
  -97
  -102
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
 
  40
  -28
  -27
  -26
  -26
  -25
  -24
  -23
  -22
  -21
  -20
  -19
  -17
  -16
  -15
  -13
  -12
  -11
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
Current shareholders' claim on cash, %
  100
  71.6
  51.1
  36.4
  25.9
  18.4
  13.0
  9.2
  6.5
  4.6
  3.2
  2.3
  1.6
  1.1
  0.8
  0.5
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Pacific Biosciences of California, Inc. designs, develops and manufactures sequencing systems to help scientists resolve genetically complex problems. The Company is engaged in the development, manufacturing and marketing of an integrated platform for genetic analysis. Its Single Molecule, Real-Time (SMRT) technology enables single molecule, real-time detection of biological processes. It offers The SMRT Cell, Phospholinked nucleotides and The PacBio RS II and Sequel instruments. Its SMRT technology enables the observation of deoxyribonucleic acid (DNA) synthesis as it occurs in real-time by harnessing the natural process of DNA replication, which is actuated by the DNA polymerase. Its phospholinked nucleotides have a fluorescent dye attached to the phosphate chain of the nucleotide rather than to the base. The PacBio RS II and Sequel instruments include optics, automated liquid handling, a touchscreen control interface and computational hardware and software.

FINANCIAL RATIOS  of  Pacific Biosciences of California (PACB)

Valuation Ratios
P/E Ratio -5.5
Price to Sales 4.5
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow -6
Price to Free Cash Flow -5.4
Growth Rates
Sales Growth Rate -2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 166.7%
Cap. Spend. - 3 Yr. Gr. Rate 51.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 18.8%
Total Debt to Equity 18.8%
Interest Coverage -36
Management Effectiveness
Return On Assets -53.5%
Ret/ On Assets - 3 Yr. Avg. -42%
Return On Total Capital -77.9%
Ret/ On T. Cap. - 3 Yr. Avg. -68.6%
Return On Equity -93.1%
Return On Equity - 3 Yr. Avg. -83%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 48.4%
Gross Margin - 3 Yr. Avg. 47.7%
EBITDA Margin -74.7%
EBITDA Margin - 3 Yr. Avg. -67%
Operating Margin -78%
Oper. Margin - 3 Yr. Avg. -70.3%
Pre-Tax Margin -81.3%
Pre-Tax Margin - 3 Yr. Avg. -74.6%
Net Profit Margin -81.3%
Net Profit Margin - 3 Yr. Avg. -74.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

PACB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PACB stock intrinsic value calculation we used $91 million for the last fiscal year's total revenue generated by Pacific Biosciences of California. The default revenue input number comes from 2016 income statement of Pacific Biosciences of California. 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 PACB 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 PACB is calculated based on our internal credit rating of Pacific Biosciences of California, 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 Pacific Biosciences of California.
    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 PACB stock the variable cost ratio is equal to 130.8%.

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 PACB 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 12.9% for Pacific Biosciences of California.

Corporate tax rate of 27% is the nominal tax rate for Pacific Biosciences of California. 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 PACB 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 PACB are equal to 12.6%.

Life of production assets of 2.9 years is the average useful life of capital assets used in Pacific Biosciences of California 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 PACB is equal to 3.3%. 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 - $85 million for Pacific Biosciences of California - 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 115.591 million for Pacific Biosciences of California 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 Pacific Biosciences of California at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Why Illumina Rose 18.7% in August   [Sep-07-17 11:47AM  Motley Fool]
▶ Pacific Biosciences reports 2Q loss   [Aug-02-17 11:06PM  Associated Press]
▶ Pacific Biosciences reports 1Q loss   [Apr-26-17 04:06PM  Associated Press]
▶ The Top Gene-Sequencing Stock to Buy in 2017   [Apr-20-17 04:20PM  Motley Fool]
▶ 3 Big Reasons to Be Bullish on Biotech Stocks   [Apr-16-17 02:02PM  Motley Fool]
▶ Pacific Biosciences of California's Recovery Continues   [Mar-29-17 12:41PM  Motley Fool]
▶ Pacific Biosciences: A Small Cap Gem in the Genomics Market   [Feb-01-17 12:30PM  at Motley Fool]
▶ Illumina Gains from Roche-Pacific Biosciences Deal Termination   [Jan-25-17 11:05AM  at Investopedia]
▶ Valeant, HiMax Lead Thursdays 52-Week Low Club   [04:04PM  at 24/7 Wall St.]
▶ Is Pacific Biosciences of California (PACB) a Good Stock to Buy?   [Dec-09-16 11:41AM  at Insider Monkey]
▶ 3 Ways Pacific Biosciences of California Can Rebound in 2017   [Dec-01-16 09:33AM  at Motley Fool]
▶ Is Illumina Inc. a Buffett Stock?   [Nov-09-16 08:09AM  at Motley Fool]
Financial statements of PACB
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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