Intrinsic value of Ligand Pharmaceuticals Incorporated - LGND

Previous Close

$111.89

  Intrinsic Value

$143.95

stock screener

  Rating & Target

buy

+29%

Previous close

$111.89

 
Intrinsic value

$143.95

 
Up/down potential

+29%

 
Rating

buy

We calculate the intrinsic value of LGND 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, %
  18.10
  16.79
  15.61
  14.55
  13.59
  12.74
  11.96
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
Revenue, $m
  296
  346
  400
  458
  521
  587
  657
  731
  809
  891
  976
  1,065
  1,158
  1,254
  1,354
  1,459
  1,567
  1,679
  1,796
  1,918
  2,044
  2,176
  2,313
  2,455
  2,604
  2,758
  2,920
  3,088
  3,264
  3,447
Variable operating expenses, $m
  34
  34
  34
  34
  34
  34
  34
  34
  34
  34
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Fixed operating expenses, $m
  56
  57
  59
  60
  61
  63
  64
  65
  67
  68
  70
  71
  73
  75
  76
  78
  80
  81
  83
  85
  87
  89
  91
  93
  95
  97
  99
  101
  103
  106
Total operating expenses, $m
  90
  91
  93
  94
  95
  97
  98
  99
  101
  102
  70
  71
  73
  75
  76
  78
  81
  82
  84
  86
  88
  90
  92
  94
  96
  98
  100
  102
  104
  107
Operating income, $m
  206
  255
  308
  365
  426
  490
  559
  632
  708
  788
  906
  993
  1,084
  1,179
  1,278
  1,380
  1,487
  1,597
  1,713
  1,832
  1,957
  2,087
  2,221
  2,362
  2,508
  2,661
  2,820
  2,986
  3,159
  3,340
EBITDA, $m
  249
  299
  353
  412
  475
  542
  613
  687
  766
  849
  935
  1,025
  1,119
  1,216
  1,318
  1,423
  1,533
  1,647
  1,766
  1,889
  2,018
  2,151
  2,290
  2,435
  2,585
  2,743
  2,906
  3,077
  3,256
  3,442
Interest expense (income), $m
  2
  71
  59
  69
  81
  93
  107
  121
  136
  151
  168
  185
  203
  222
  242
  263
  284
  306
  329
  353
  378
  404
  431
  459
  488
  518
  550
  582
  617
  653
  690
Earnings before tax, $m
  135
  196
  238
  284
  332
  384
  439
  496
  557
  620
  721
  790
  862
  937
  1,015
  1,096
  1,181
  1,268
  1,360
  1,455
  1,553
  1,656
  1,763
  1,874
  1,990
  2,111
  2,237
  2,369
  2,507
  2,650
Tax expense, $m
  36
  53
  64
  77
  90
  104
  118
  134
  150
  168
  195
  213
  233
  253
  274
  296
  319
  342
  367
  393
  419
  447
  476
  506
  537
  570
  604
  640
  677
  716
Net income, $m
  99
  143
  174
  207
  242
  280
  320
  362
  407
  453
  526
  577
  629
  684
  741
  800
  862
  926
  993
  1,062
  1,134
  1,209
  1,287
  1,368
  1,453
  1,541
  1,633
  1,729
  1,830
  1,935

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
  625
  730
  844
  967
  1,099
  1,239
  1,387
  1,543
  1,707
  1,879
  2,059
  2,247
  2,442
  2,646
  2,857
  3,077
  3,306
  3,543
  3,790
  4,046
  4,313
  4,591
  4,880
  5,180
  5,493
  5,820
  6,160
  6,515
  6,885
  7,272
Adjusted assets (=assets-cash), $m
  625
  730
  844
  967
  1,099
  1,239
  1,387
  1,543
  1,707
  1,879
  2,059
  2,247
  2,442
  2,646
  2,857
  3,077
  3,306
  3,543
  3,790
  4,046
  4,313
  4,591
  4,880
  5,180
  5,493
  5,820
  6,160
  6,515
  6,885
  7,272
Revenue / Adjusted assets
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
Average production assets, $m
  204
  238
  275
  315
  358
  404
  452
  503
  557
  613
  671
  733
  796
  863
  932
  1,003
  1,078
  1,155
  1,236
  1,320
  1,407
  1,497
  1,591
  1,689
  1,791
  1,898
  2,009
  2,125
  2,245
  2,371
Working capital, $m
  33
  38
  44
  50
  57
  65
  72
  80
  89
  98
  107
  117
  127
  138
  149
  160
  172
  185
  198
  211
  225
  239
  254
  270
  286
  303
  321
  340
  359
  379
Total debt, $m
  526
  620
  723
  833
  952
  1,078
  1,211
  1,352
  1,499
  1,654
  1,816
  1,985
  2,161
  2,344
  2,534
  2,732
  2,938
  3,152
  3,374
  3,605
  3,845
  4,095
  4,354
  4,625
  4,907
  5,200
  5,507
  5,826
  6,159
  6,508
Total liabilities, $m
  563
  657
  760
  871
  989
  1,115
  1,248
  1,389
  1,537
  1,691
  1,853
  2,022
  2,198
  2,381
  2,571
  2,769
  2,975
  3,189
  3,411
  3,642
  3,882
  4,132
  4,392
  4,662
  4,944
  5,238
  5,544
  5,863
  6,197
  6,545
Total equity, $m
  63
  73
  84
  97
  110
  124
  139
  154
  171
  188
  206
  225
  244
  265
  286
  308
  331
  354
  379
  405
  431
  459
  488
  518
  549
  582
  616
  651
  689
  727
Total liabilities and equity, $m
  626
  730
  844
  968
  1,099
  1,239
  1,387
  1,543
  1,708
  1,879
  2,059
  2,247
  2,442
  2,646
  2,857
  3,077
  3,306
  3,543
  3,790
  4,047
  4,313
  4,591
  4,880
  5,180
  5,493
  5,820
  6,160
  6,514
  6,886
  7,272
Debt-to-equity ratio
  8.410
  8.490
  8.560
  8.620
  8.660
  8.700
  8.730
  8.760
  8.780
  8.800
  8.820
  8.830
  8.850
  8.860
  8.870
  8.880
  8.890
  8.900
  8.900
  8.910
  8.910
  8.920
  8.920
  8.930
  8.930
  8.940
  8.940
  8.940
  8.950
  8.950
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
  99
  143
  174
  207
  242
  280
  320
  362
  407
  453
  526
  577
  629
  684
  741
  800
  862
  926
  993
  1,062
  1,134
  1,209
  1,287
  1,368
  1,453
  1,541
  1,633
  1,729
  1,830
  1,935
Depreciation, amort., depletion, $m
  43
  44
  46
  47
  49
  51
  53
  55
  58
  60
  29
  32
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  69
  73
  77
  82
  87
  92
  97
  102
Funds from operations, $m
  141
  187
  220
  254
  292
  331
  373
  418
  464
  513
  555
  608
  664
  721
  781
  844
  908
  976
  1,046
  1,119
  1,194
  1,273
  1,355
  1,441
  1,530
  1,623
  1,720
  1,821
  1,927
  2,037
Change in working capital, $m
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
Cash from operations, $m
  136
  182
  214
  248
  285
  324
  366
  410
  456
  504
  546
  598
  653
  711
  770
  832
  896
  963
  1,033
  1,105
  1,181
  1,259
  1,340
  1,425
  1,514
  1,606
  1,702
  1,802
  1,907
  2,017
Maintenance CAPEX, $m
  -7
  -9
  -10
  -12
  -14
  -15
  -17
  -19
  -22
  -24
  -26
  -29
  -32
  -34
  -37
  -40
  -43
  -46
  -50
  -53
  -57
  -61
  -65
  -69
  -73
  -77
  -82
  -87
  -92
  -97
New CAPEX, $m
  -31
  -34
  -37
  -40
  -43
  -46
  -48
  -51
  -54
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -77
  -80
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -111
  -116
  -121
  -126
Cash from investing activities, $m
  -38
  -43
  -47
  -52
  -57
  -61
  -65
  -70
  -76
  -80
  -85
  -90
  -96
  -100
  -106
  -112
  -118
  -123
  -130
  -137
  -144
  -151
  -159
  -167
  -175
  -183
  -193
  -203
  -213
  -223
Free cash flow, $m
  98
  139
  166
  196
  228
  263
  300
  339
  381
  424
  461
  508
  558
  610
  664
  720
  779
  839
  903
  968
  1,037
  1,108
  1,182
  1,259
  1,339
  1,422
  1,509
  1,600
  1,695
  1,794
Issuance/(repayment) of debt, $m
  -111
  95
  103
  111
  118
  126
  133
  141
  148
  155
  162
  169
  176
  183
  190
  198
  206
  214
  222
  231
  240
  250
  260
  271
  282
  294
  306
  319
  333
  348
Issuance/(repurchase) of shares, $m
  108
  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  
  -3
  95
  103
  111
  118
  126
  133
  141
  148
  155
  162
  169
  176
  183
  190
  198
  206
  214
  222
  231
  240
  250
  260
  271
  282
  294
  306
  319
  333
  348
Total cash flow (excl. dividends), $m
  95
  233
  269
  307
  347
  389
  433
  480
  528
  579
  622
  677
  734
  793
  854
  918
  984
  1,053
  1,125
  1,199
  1,277
  1,357
  1,442
  1,529
  1,621
  1,716
  1,816
  1,920
  2,028
  2,142
Retained Cash Flow (-), $m
  -207
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -39
Prev. year cash balance distribution, $m
  705
  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
  593
  223
  257
  294
  334
  375
  419
  464
  512
  562
  604
  658
  714
  773
  833
  896
  962
  1,029
  1,100
  1,174
  1,250
  1,330
  1,413
  1,499
  1,589
  1,683
  1,782
  1,884
  1,991
  2,103
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
  569
  204
  224
  242
  259
  272
  283
  290
  294
  294
  287
  281
  272
  259
  245
  228
  209
  190
  169
  149
  129
  110
  93
  76
  62
  49
  38
  29
  22
  16
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

Ligand Pharmaceuticals Incorporated (Ligand) is a biopharmaceutical company that focuses on developing and acquiring technologies that help pharmaceutical companies discover and develop medicines. The Company is involved in the development and licensing of biopharmaceutical assets. The Company employs research technologies, such as nuclear receptor assays, high throughput computer screening, formulation science, liver targeted pro-drug technologies and antibody discovery technologies to assist companies in their work toward obtaining prescription drug approvals. As of December 31, 2016, it had partnerships and license agreements with over 85 pharmaceutical and biotechnology companies, and over 140 various programs under license with it were in various stages of commercialization and development. It has contributed research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections and low blood platelets, among others.

FINANCIAL RATIOS  of  Ligand Pharmaceuticals Incorporated (LGND)

Valuation Ratios
P/E Ratio -1169.8
Price to Sales 21.5
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 37.1
Price to Free Cash Flow 54.4
Growth Rates
Sales Growth Rate 51.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 400%
Cap. Spend. - 3 Yr. Gr. Rate 38%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 8.5%
Total Debt to Equity 71%
Interest Coverage 5
Management Effectiveness
Return On Assets -0.5%
Ret/ On Assets - 3 Yr. Avg. 23.3%
Return On Total Capital -0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 24.4%
Return On Equity -0.7%
Return On Equity - 3 Yr. Avg. 68.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 94.5%
Gross Margin - 3 Yr. Avg. 90.3%
EBITDA Margin 19.3%
EBITDA Margin - 3 Yr. Avg. 32.1%
Operating Margin 40.4%
Oper. Margin - 3 Yr. Avg. 49.6%
Pre-Tax Margin 7.3%
Pre-Tax Margin - 3 Yr. Avg. 24.3%
Net Profit Margin -1.8%
Net Profit Margin - 3 Yr. Avg. 112%
Effective Tax Rate 125%
Eff/ Tax Rate - 3 Yr. Avg. -141.2%
Payout Ratio 0%

LGND stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LGND stock intrinsic value calculation we used $251 million for the last fiscal year's total revenue generated by Ligand Pharmaceuticals Incorporated. The default revenue input number comes from 0001 income statement of Ligand Pharmaceuticals Incorporated. 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 LGND stock valuation model: a) initial revenue growth rate of 18.1% 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 LGND is calculated based on our internal credit rating of Ligand Pharmaceuticals Incorporated, 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 Ligand Pharmaceuticals Incorporated.
    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 LGND stock the variable cost ratio is equal to 13.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $55 million in the base year in the intrinsic value calculation for LGND 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 11.2% for Ligand Pharmaceuticals Incorporated.

Corporate tax rate of 27% is the nominal tax rate for Ligand Pharmaceuticals Incorporated. 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 LGND 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 LGND are equal to 68.8%.

Life of production assets of 23.2 years is the average useful life of capital assets used in Ligand Pharmaceuticals Incorporated 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 LGND is equal to 11%. 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 - $560.914 million for Ligand Pharmaceuticals Incorporated - 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 20.415 million for Ligand Pharmaceuticals Incorporated 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 Ligand Pharmaceuticals Incorporated at the current share price and the inputted number of shares is $2.3 billion.

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