Intrinsic value of PDL BioPharma - PDLI

Previous Close

$2.58

  Intrinsic Value

$15.77

stock screener

  Rating & Target

str. buy

+511%

Previous close

$2.58

 
Intrinsic value

$15.77

 
Up/down potential

+511%

 
Rating

str. buy

We calculate the intrinsic value of PDLI 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  -58.64
  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
  244
  326
  334
  343
  352
  363
  375
  387
  401
  416
  432
  449
  467
  487
  507
  529
  552
  577
  603
  630
  659
  690
  722
  756
  792
  830
  869
  911
  955
  1,001
  1,050
Variable operating expenses, $m
 
  49
  49
  50
  51
  52
  53
  54
  55
  56
  57
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  57
  60
  62
  65
  68
  72
  75
  79
  83
  87
Fixed operating expenses, $m
 
  82
  84
  85
  87
  89
  91
  93
  95
  97
  99
  102
  104
  106
  108
  111
  113
  116
  118
  121
  124
  126
  129
  132
  135
  138
  141
  144
  147
  150
  154
Total operating expenses, $m
  117
  131
  133
  135
  138
  141
  144
  147
  150
  153
  156
  139
  143
  146
  150
  155
  159
  164
  168
  173
  178
  183
  189
  194
  200
  206
  213
  219
  226
  233
  241
Operating income, $m
  127
  196
  201
  207
  214
  222
  231
  241
  251
  263
  275
  310
  325
  340
  357
  375
  393
  414
  435
  457
  481
  507
  533
  562
  592
  623
  657
  692
  729
  768
  810
EBITDA, $m
  139
  231
  236
  242
  250
  258
  267
  277
  289
  301
  314
  328
  343
  360
  377
  396
  415
  436
  459
  482
  507
  534
  562
  592
  623
  656
  691
  728
  767
  808
  851
Interest expense (income), $m
  11
  21
  21
  22
  22
  23
  24
  25
  26
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  70
Earnings before tax, $m
  109
  175
  180
  186
  192
  199
  207
  216
  226
  236
  248
  282
  295
  309
  324
  340
  358
  376
  396
  416
  438
  461
  486
  512
  540
  569
  599
  632
  666
  702
  740
Tax expense, $m
  45
  47
  49
  50
  52
  54
  56
  58
  61
  64
  67
  76
  80
  83
  88
  92
  97
  102
  107
  112
  118
  125
  131
  138
  146
  154
  162
  171
  180
  190
  200
Net income, $m
  64
  128
  131
  136
  140
  145
  151
  158
  165
  172
  181
  206
  215
  226
  237
  249
  261
  275
  289
  304
  320
  337
  355
  374
  394
  415
  437
  461
  486
  512
  540

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  242
  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
  1,215
  739
  756
  775
  797
  821
  847
  876
  908
  941
  977
  1,016
  1,057
  1,101
  1,148
  1,197
  1,250
  1,305
  1,364
  1,426
  1,492
  1,561
  1,634
  1,711
  1,792
  1,877
  1,967
  2,061
  2,161
  2,265
  2,375
Adjusted assets (=assets-cash), $m
  973
  739
  756
  775
  797
  821
  847
  876
  908
  941
  977
  1,016
  1,057
  1,101
  1,148
  1,197
  1,250
  1,305
  1,364
  1,426
  1,492
  1,561
  1,634
  1,711
  1,792
  1,877
  1,967
  2,061
  2,161
  2,265
  2,375
Revenue / Adjusted assets
  0.251
  0.441
  0.442
  0.443
  0.442
  0.442
  0.443
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
Average production assets, $m
  515
  117
  120
  123
  126
  130
  134
  139
  144
  149
  155
  161
  168
  175
  182
  190
  198
  207
  216
  226
  237
  248
  259
  271
  284
  298
  312
  327
  343
  359
  377
Working capital, $m
  268
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
Total debt, $m
  232
  249
  255
  262
  270
  279
  289
  300
  312
  324
  338
  352
  368
  384
  402
  420
  440
  461
  482
  506
  530
  556
  583
  612
  642
  674
  708
  743
  780
  820
  861
Total liabilities, $m
  464
  276
  283
  290
  298
  307
  317
  328
  339
  352
  366
  380
  395
  412
  429
  448
  467
  488
  510
  533
  558
  584
  611
  640
  670
  702
  736
  771
  808
  847
  888
Total equity, $m
  751
  462
  473
  485
  499
  514
  531
  549
  568
  589
  612
  636
  662
  689
  719
  750
  782
  817
  854
  893
  934
  977
  1,023
  1,071
  1,122
  1,175
  1,231
  1,290
  1,353
  1,418
  1,487
Total liabilities and equity, $m
  1,215
  738
  756
  775
  797
  821
  848
  877
  907
  941
  978
  1,016
  1,057
  1,101
  1,148
  1,198
  1,249
  1,305
  1,364
  1,426
  1,492
  1,561
  1,634
  1,711
  1,792
  1,877
  1,967
  2,061
  2,161
  2,265
  2,375
Debt-to-equity ratio
  0.309
  0.540
  0.540
  0.540
  0.540
  0.540
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.580
Adjusted equity ratio
  0.523
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  64
  128
  131
  136
  140
  145
  151
  158
  165
  172
  181
  206
  215
  226
  237
  249
  261
  275
  289
  304
  320
  337
  355
  374
  394
  415
  437
  461
  486
  512
  540
Depreciation, amort., depletion, $m
  12
  34
  35
  35
  35
  36
  36
  37
  37
  38
  39
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
Funds from operations, $m
  88
  163
  166
  171
  176
  181
  188
  195
  202
  210
  219
  223
  234
  245
  257
  269
  283
  297
  313
  329
  346
  364
  383
  404
  425
  448
  472
  497
  524
  552
  582
Change in working capital, $m
  -14
  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
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  102
  163
  167
  171
  176
  182
  188
  195
  203
  211
  220
  224
  234
  246
  258
  270
  284
  298
  314
  330
  347
  365
  385
  405
  427
  449
  473
  499
  525
  554
  583
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
New CAPEX, $m
  -60
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
Cash from investing activities, $m
  -145
  -15
  -16
  -16
  -17
  -18
  -18
  -20
  -20
  -21
  -22
  -23
  -25
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -43
  -45
  -47
  -49
  -52
  -55
  -56
Free cash flow, $m
  -43
  148
  151
  155
  159
  164
  170
  176
  182
  190
  198
  201
  210
  220
  231
  242
  255
  268
  282
  296
  312
  328
  346
  364
  384
  405
  426
  449
  474
  499
  526
Issuance/(repayment) of debt, $m
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -12
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
Total cash flow (excl. dividends), $m
  -55
  152
  157
  162
  167
  173
  179
  186
  194
  202
  211
  215
  226
  237
  248
  261
  274
  288
  303
  319
  336
  354
  373
  393
  414
  436
  460
  485
  511
  539
  568
Retained Cash Flow (-), $m
  -55
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -66
  -69
Prev. year cash balance distribution, $m
 
  393
  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
 
  536
  147
  150
  154
  158
  163
  168
  175
  181
  189
  191
  200
  209
  219
  230
  241
  254
  267
  281
  295
  311
  327
  345
  363
  383
  404
  426
  449
  473
  499
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
 
  514
  134
  130
  126
  122
  118
  114
  109
  104
  99
  91
  85
  80
  74
  68
  61
  55
  49
  43
  38
  32
  27
  23
  19
  15
  12
  9
  7
  5
  4
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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PDL BioPharma, Inc. seeks to provide return for its shareholders by acquiring and managing a portfolio of companies, products, royalty agreements and debt facilities in the biotechnology, pharmaceutical and medical device industries. The Company's segments include income generating assets and product sales. The income generating assets segment consists of royalties from issued patents in the United States and elsewhere, covering the humanization of antibodies, which it refers to as the Queen et al. patents; notes and other long-term receivables, royalty rights-at fair value and equity investments. The Company's product sales segment consists of revenue derived from Tekturna, Tekturna HCT, Rasilez and Rasilez HCT (collectively, the Noden Products or Tekturna) sales. It is focused on the acquisition of additional products. As of December 31, 2016, it had a total of five notes receivable transactions outstanding and one note/royalty (hybrid) receivable transaction outstanding.

FINANCIAL RATIOS  of  PDL BioPharma (PDLI)

Valuation Ratios
P/E Ratio 6.7
Price to Sales 1.8
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 4.2
Price to Free Cash Flow 10.2
Growth Rates
Sales Growth Rate -58.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -47.8%
Cap. Spend. - 3 Yr. Gr. Rate -24.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 30.9%
Total Debt to Equity 30.9%
Interest Coverage 11
Management Effectiveness
Return On Assets 6.3%
Ret/ On Assets - 3 Yr. Avg. 28.5%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 29.2%
Return On Equity 8.8%
Return On Equity - 3 Yr. Avg. 59.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 98.4%
Gross Margin - 3 Yr. Avg. 32.8%
EBITDA Margin 54.1%
EBITDA Margin - 3 Yr. Avg. 78.7%
Operating Margin 52%
Oper. Margin - 3 Yr. Avg. 79.7%
Pre-Tax Margin 44.7%
Pre-Tax Margin - 3 Yr. Avg. 73.6%
Net Profit Margin 26.2%
Net Profit Margin - 3 Yr. Avg. 46%
Effective Tax Rate 41.3%
Eff/ Tax Rate - 3 Yr. Avg. 38.1%
Payout Ratio 26.6%

PDLI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PDLI stock intrinsic value calculation we used $320.06 million for the last fiscal year's total revenue generated by PDL BioPharma. The default revenue input number comes from 2016 income statement of PDL BioPharma. 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 PDLI 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 PDLI is calculated based on our internal credit rating of PDL BioPharma, 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 PDL BioPharma.
    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 PDLI stock the variable cost ratio is equal to 15%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $80 million in the base year in the intrinsic value calculation for PDLI 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 8.5% for PDL BioPharma.

Corporate tax rate of 27% is the nominal tax rate for PDL BioPharma. 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 PDLI 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 PDLI are equal to 35.9%.

Life of production assets of 9.1 years is the average useful life of capital assets used in PDL BioPharma 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 PDLI is equal to -3.9%. 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 - $845.89 million for PDL BioPharma - 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 150.641 million for PDL BioPharma 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 PDL BioPharma at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

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▶ PDL BioPharma: 2Q Earnings Snapshot   [Aug-08-18 04:56PM  Associated Press]
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▶ PDL BioPharma: 1Q Earnings Snapshot   [May-09-18 04:41PM  Associated Press]
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▶ Best-In-Class Undervalued Stocks   [Mar-31-18 10:02AM  Simply Wall St.]
▶ Is PDL BioPharma, Inc. a Buy?   [Mar-27-18 06:34AM  Motley Fool]
▶ PDL BioPharma posts 4Q profit   [Mar-08-18 04:40PM  Associated Press]
▶ PDL BioPharma posts 3Q profit   [Nov-02-17 05:47PM  Associated Press]
▶ Why Neos Therapeutics Inc (NEOS) Shares Climbed 37% Today   [Oct-26-17 01:34PM  SmarterAnalyst]
▶ PDL BioPharma Appoints Dominique Monnet as President   [Sep-11-17 04:02PM  PR Newswire]
Financial statements of PDLI
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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