Intrinsic value of Halozyme Therapeutics - HALO

Previous Close

$16.20

  Intrinsic Value

$3.28

stock screener

  Rating & Target

str. sell

-80%

Previous close

$16.20

 
Intrinsic value

$3.28

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of HALO 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 0001), $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 2.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  330
  345
  360
  376
  393
  411
  430
  450
  471
  494
  517
  542
  568
  595
  624
  655
  686
  720
  755
  792
  831
  872
  915
  960
  1,008
  1,058
  1,110
  1,165
  1,223
  1,284
Variable operating expenses, $m
  103
  108
  112
  117
  123
  128
  134
  140
  147
  154
  161
  169
  177
  186
  195
  204
  214
  225
  236
  247
  259
  272
  285
  300
  314
  330
  346
  363
  382
  400
Fixed operating expenses, $m
  192
  196
  201
  205
  210
  214
  219
  224
  229
  234
  239
  244
  249
  255
  261
  266
  272
  278
  284
  291
  297
  303
  310
  317
  324
  331
  338
  346
  353
  361
Total operating expenses, $m
  295
  304
  313
  322
  333
  342
  353
  364
  376
  388
  400
  413
  426
  441
  456
  470
  486
  503
  520
  538
  556
  575
  595
  617
  638
  661
  684
  709
  735
  761
Operating income, $m
  35
  41
  47
  54
  61
  69
  77
  86
  96
  106
  117
  129
  141
  155
  169
  184
  200
  217
  235
  255
  275
  297
  319
  344
  369
  397
  425
  456
  488
  522
EBITDA, $m
  36
  42
  48
  55
  62
  70
  78
  87
  97
  107
  118
  130
  143
  156
  170
  186
  202
  219
  237
  256
  277
  299
  322
  346
  372
  399
  428
  459
  491
  525
Interest expense (income), $m
  4
  21
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
Earnings before tax, $m
  14
  34
  40
  46
  53
  60
  68
  76
  85
  95
  105
  116
  128
  140
  154
  168
  183
  199
  216
  234
  254
  274
  296
  319
  343
  369
  396
  425
  455
  487
Tax expense, $m
  4
  9
  11
  12
  14
  16
  18
  21
  23
  26
  28
  31
  35
  38
  42
  45
  49
  54
  58
  63
  68
  74
  80
  86
  93
  100
  107
  115
  123
  132
Net income, $m
  10
  25
  29
  33
  38
  44
  49
  56
  62
  69
  77
  85
  93
  102
  112
  123
  134
  145
  158
  171
  185
  200
  216
  233
  250
  269
  289
  310
  332
  356

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  109
  113
  118
  124
  129
  135
  142
  148
  155
  163
  170
  178
  187
  196
  205
  215
  226
  237
  249
  261
  274
  287
  301
  316
  332
  348
  365
  383
  403
  423
Adjusted assets (=assets-cash), $m
  109
  113
  118
  124
  129
  135
  142
  148
  155
  163
  170
  178
  187
  196
  205
  215
  226
  237
  249
  261
  274
  287
  301
  316
  332
  348
  365
  383
  403
  423
Revenue / Adjusted assets
  3.028
  3.053
  3.051
  3.032
  3.047
  3.044
  3.028
  3.041
  3.039
  3.031
  3.041
  3.045
  3.037
  3.036
  3.044
  3.047
  3.035
  3.038
  3.032
  3.034
  3.033
  3.038
  3.040
  3.038
  3.036
  3.040
  3.041
  3.042
  3.035
  3.035
Average production assets, $m
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  10
  10
  10
  11
  12
  12
  13
  13
  14
  15
  15
Working capital, $m
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
Total debt, $m
  66
  70
  75
  79
  84
  90
  95
  101
  108
  114
  121
  129
  136
  144
  153
  162
  171
  181
  192
  203
  214
  226
  239
  252
  267
  281
  297
  313
  330
  348
Total liabilities, $m
  98
  102
  107
  111
  116
  122
  127
  133
  140
  146
  153
  161
  168
  176
  185
  194
  203
  213
  224
  235
  246
  258
  271
  284
  299
  313
  329
  345
  362
  380
Total equity, $m
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
Total liabilities and equity, $m
  109
  113
  119
  123
  129
  136
  141
  148
  156
  162
  170
  179
  187
  196
  206
  216
  226
  237
  249
  261
  273
  287
  301
  316
  332
  348
  366
  383
  402
  422
Debt-to-equity ratio
  6.050
  6.180
  6.300
  6.410
  6.530
  6.630
  6.740
  6.840
  6.940
  7.030
  7.120
  7.210
  7.290
  7.370
  7.440
  7.510
  7.580
  7.650
  7.710
  7.770
  7.830
  7.880
  7.940
  7.990
  8.030
  8.080
  8.120
  8.170
  8.200
  8.240
Adjusted equity ratio
  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
  10
  25
  29
  33
  38
  44
  49
  56
  62
  69
  77
  85
  93
  102
  112
  123
  134
  145
  158
  171
  185
  200
  216
  233
  250
  269
  289
  310
  332
  356
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
Funds from operations, $m
  11
  26
  30
  34
  39
  45
  50
  57
  63
  70
  78
  86
  95
  104
  114
  124
  135
  147
  160
  173
  187
  202
  218
  235
  253
  272
  292
  313
  335
  359
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
Cash from operations, $m
  11
  26
  30
  35
  40
  45
  51
  57
  64
  71
  79
  87
  96
  105
  115
  125
  137
  149
  161
  175
  189
  204
  220
  237
  255
  274
  294
  315
  338
  361
Maintenance CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
Free cash flow, $m
  11
  25
  29
  34
  39
  44
  50
  56
  63
  70
  77
  86
  94
  103
  113
  124
  135
  146
  159
  172
  186
  201
  217
  234
  252
  271
  291
  312
  334
  358
Issuance/(repayment) of debt, $m
  -137
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
Issuance/(repurchase) of shares, $m
  131
  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  
  -6
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
Total cash flow (excl. dividends), $m
  5
  29
  34
  39
  44
  50
  56
  62
  69
  76
  84
  93
  102
  111
  122
  133
  144
  156
  169
  183
  198
  213
  230
  247
  266
  285
  306
  328
  351
  376
Retained Cash Flow (-), $m
  -141
  0
  -1
  -1
  -1
  -1
  -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
  338
  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
  202
  29
  33
  38
  43
  49
  55
  61
  68
  76
  84
  92
  101
  111
  121
  132
  143
  155
  168
  182
  197
  212
  229
  246
  264
  284
  304
  326
  349
  374
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
  194
  27
  29
  31
  34
  36
  37
  38
  39
  40
  40
  39
  38
  37
  35
  33
  31
  29
  26
  23
  20
  18
  15
  13
  10
  8
  7
  5
  4
  3
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Halozyme Therapeutics, Inc. is a biotechnology company focused on developing and commercializing oncology therapies. The Company operates in research, development and commercialization of human enzymes and other drug candidates. The Company's segment also includes research and development activities and product sales of Hylenex recombinant. The Company's development pipeline consists of clinical-stage product candidates in oncology. Its lead oncology program is PEGPH20 (polyethylene glycol (PEG)ylated recombinant human hyaluronidase), a molecular entity being developed for the systemic treatment of tumors, which accumulate HA. It is in Phase II and Phase III clinical testing for PEGPH20 in stage IV pancreatic ductal adenocarcinoma (Studies 109-202 and 109-301); Phase Ib clinical testing in non-small cell lung cancer (Study 107-201), and in Phase Ib clinical testing in non-small cell lung cancer and gastric cancer (Study 107-101).

FINANCIAL RATIOS  of  Halozyme Therapeutics (HALO)

Valuation Ratios
P/E Ratio -20.4
Price to Sales 14.3
Price to Book -65.6
Price to Tangible Book
Price to Cash Flow -42
Price to Free Cash Flow -39.6
Growth Rates
Sales Growth Rate 8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 12
Current Ratio 0
LT Debt to Equity -625%
Total Debt to Equity -678.1%
Interest Coverage -25
Management Effectiveness
Return On Assets -44.6%
Ret/ On Assets - 3 Yr. Avg. -36.4%
Return On Total Capital -74.1%
Ret/ On T. Cap. - 3 Yr. Avg. -73.8%
Return On Equity -1872.7%
Return On Equity - 3 Yr. Avg. -865.5%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 76.9%
Gross Margin - 3 Yr. Avg. 75.4%
EBITDA Margin -65.3%
EBITDA Margin - 3 Yr. Avg. -56.2%
Operating Margin -56.5%
Oper. Margin - 3 Yr. Avg. -53.7%
Pre-Tax Margin -69.4%
Pre-Tax Margin - 3 Yr. Avg. -61.3%
Net Profit Margin -70.1%
Net Profit Margin - 3 Yr. Avg. -61.5%
Effective Tax Rate -1%
Eff/ Tax Rate - 3 Yr. Avg. -0.3%
Payout Ratio 0%

HALO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HALO stock intrinsic value calculation we used $316.613 million for the last fiscal year's total revenue generated by Halozyme Therapeutics. The default revenue input number comes from 0001 income statement of Halozyme Therapeutics. 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 HALO stock valuation model: a) initial revenue growth rate of 4.3% 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 HALO is calculated based on our internal credit rating of Halozyme Therapeutics, 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 Halozyme Therapeutics.
    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 HALO stock the variable cost ratio is equal to 31.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $188 million in the base year in the intrinsic value calculation for HALO 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 10.5% for Halozyme Therapeutics.

Corporate tax rate of 27% is the nominal tax rate for Halozyme Therapeutics. 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 HALO 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 HALO are equal to 1.2%.

Life of production assets of 1.8 years is the average useful life of capital assets used in Halozyme Therapeutics 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 HALO is equal to -4.2%. 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 - $208.366 million for Halozyme Therapeutics - 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 143.966 million for Halozyme Therapeutics 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 Halozyme Therapeutics at the current share price and the inputted number of shares is $2.3 billion.

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COMPANY NEWS

▶ Halozyme Therapeutics: 3Q Earnings Snapshot   [06:02PM  Associated Press]
▶ Halo Labs Announces Launch of Edibles in Oregon   [Nov-01-18 08:00AM  Business Wire]
▶ Halo Labs Inc. Opens NEO   [Oct-23-18 10:38AM  Business Wire]
▶ Halo Labs Launches On NEO   [Oct-03-18 09:30AM  Business Wire]
▶ Halozyme Therapeutics: 2Q Earnings Snapshot   [05:05AM  Associated Press]
▶ Halozyme Reports Second Quarter 2018 Results   [Aug-07-18 04:21PM  PR Newswire]
▶ Halozyme Therapeutics Clears Technical Benchmark, Hitting 80-Plus RS Rating   [May-24-18 03:00AM  Investor's Business Daily]
▶ Halozyme Therapeutics: 1Q Earnings Snapshot   [May-10-18 04:44PM  Associated Press]
▶ Halozyme Therapeutics tops Street 4Q forecasts   [Feb-20-18 04:49PM  Associated Press]
▶ First Eagle Reduces Halozyme Therapeutics Stake   [Feb-05-18 05:43PM  GuruFocus.com]
▶ First Eagle Fund of America 4th Quarter Commentary   [Jan-29-18 05:39PM  GuruFocus.com]
▶ Stocks To Watch: Halozyme Therapeutics Sees RS Rating Rise To 92   [Jan-11-18 03:00AM  Investor's Business Daily]
▶ 3 Top Stocks Wall Street Is Overlooking   [Dec-26-17 10:30AM  Motley Fool]
▶ Analyst Recommendations for Alexion in December 2017   [Dec-11-17 09:02AM  Market Realist]

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