Intrinsic value of Nektar Therapeutics - NKTR

Previous Close

$17.01

  Intrinsic Value

$43.59

stock screener

  Rating & Target

str. buy

+156%

Previous close

$17.01

 
Intrinsic value

$43.59

 
Up/down potential

+156%

 
Rating

str. buy

We calculate the intrinsic value of NKTR 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 3.0

 

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, %
  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
  1,217
  1,245
  1,277
  1,313
  1,353
  1,396
  1,444
  1,495
  1,551
  1,610
  1,674
  1,742
  1,814
  1,891
  1,973
  2,059
  2,151
  2,247
  2,350
  2,458
  2,571
  2,692
  2,818
  2,952
  3,092
  3,240
  3,396
  3,560
  3,732
  3,913
Variable operating expenses, $m
  291
  297
  305
  313
  322
  332
  343
  355
  368
  382
  389
  405
  422
  440
  459
  479
  500
  523
  546
  571
  598
  626
  655
  686
  719
  753
  790
  828
  868
  910
Fixed operating expenses, $m
  307
  313
  320
  327
  334
  342
  349
  357
  365
  373
  381
  390
  398
  407
  416
  425
  434
  444
  454
  464
  474
  484
  495
  506
  517
  528
  540
  552
  564
  576
Total operating expenses, $m
  598
  610
  625
  640
  656
  674
  692
  712
  733
  755
  770
  795
  820
  847
  875
  904
  934
  967
  1,000
  1,035
  1,072
  1,110
  1,150
  1,192
  1,236
  1,281
  1,330
  1,380
  1,432
  1,486
Operating income, $m
  620
  634
  652
  672
  696
  722
  751
  783
  817
  855
  903
  947
  994
  1,044
  1,098
  1,155
  1,216
  1,281
  1,350
  1,422
  1,500
  1,581
  1,668
  1,759
  1,856
  1,958
  2,066
  2,180
  2,300
  2,427
EBITDA, $m
  635
  650
  668
  688
  712
  738
  768
  800
  835
  873
  914
  958
  1,006
  1,056
  1,110
  1,168
  1,230
  1,295
  1,364
  1,438
  1,516
  1,598
  1,686
  1,778
  1,876
  1,979
  2,087
  2,202
  2,324
  2,452
Interest expense (income), $m
  21
  22
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  59
  62
  66
  70
  74
  78
  82
  87
  92
  97
  103
Earnings before tax, $m
  598
  612
  629
  648
  670
  695
  723
  753
  786
  822
  868
  910
  955
  1,003
  1,054
  1,109
  1,167
  1,229
  1,294
  1,364
  1,438
  1,516
  1,598
  1,686
  1,778
  1,876
  1,979
  2,088
  2,203
  2,324
Tax expense, $m
  161
  165
  170
  175
  181
  188
  195
  203
  212
  222
  234
  246
  258
  271
  285
  299
  315
  332
  349
  368
  388
  409
  432
  455
  480
  507
  534
  564
  595
  628
Net income, $m
  436
  447
  459
  473
  489
  507
  528
  550
  574
  600
  634
  664
  697
  732
  769
  809
  852
  897
  945
  996
  1,049
  1,107
  1,167
  1,231
  1,298
  1,370
  1,445
  1,524
  1,608
  1,697

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
  915
  936
  960
  987
  1,017
  1,050
  1,086
  1,124
  1,166
  1,211
  1,259
  1,310
  1,364
  1,422
  1,483
  1,548
  1,617
  1,690
  1,767
  1,848
  1,933
  2,024
  2,119
  2,219
  2,325
  2,436
  2,553
  2,676
  2,806
  2,942
Adjusted assets (=assets-cash), $m
  915
  936
  960
  987
  1,017
  1,050
  1,086
  1,124
  1,166
  1,211
  1,259
  1,310
  1,364
  1,422
  1,483
  1,548
  1,617
  1,690
  1,767
  1,848
  1,933
  2,024
  2,119
  2,219
  2,325
  2,436
  2,553
  2,676
  2,806
  2,942
Revenue / Adjusted assets
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.329
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
Average production assets, $m
  88
  90
  92
  95
  97
  101
  104
  108
  112
  116
  121
  125
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  233
  244
  256
  269
  282
Working capital, $m
  21
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  67
Total debt, $m
  255
  265
  277
  290
  305
  320
  338
  356
  376
  398
  421
  446
  472
  500
  529
  561
  594
  629
  666
  705
  746
  790
  836
  884
  935
  989
  1,045
  1,104
  1,167
  1,233
Total liabilities, $m
  441
  451
  463
  476
  490
  506
  523
  542
  562
  584
  607
  631
  657
  685
  715
  746
  779
  814
  851
  891
  932
  975
  1,021
  1,070
  1,121
  1,174
  1,231
  1,290
  1,353
  1,418
Total equity, $m
  474
  485
  497
  511
  527
  544
  562
  582
  604
  627
  652
  678
  707
  737
  768
  802
  838
  875
  915
  957
  1,002
  1,048
  1,098
  1,150
  1,204
  1,262
  1,323
  1,386
  1,454
  1,524
Total liabilities and equity, $m
  915
  936
  960
  987
  1,017
  1,050
  1,085
  1,124
  1,166
  1,211
  1,259
  1,309
  1,364
  1,422
  1,483
  1,548
  1,617
  1,689
  1,766
  1,848
  1,934
  2,023
  2,119
  2,220
  2,325
  2,436
  2,554
  2,676
  2,807
  2,942
Debt-to-equity ratio
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.750
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.800
  0.810
Adjusted equity ratio
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518
  0.518

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  436
  447
  459
  473
  489
  507
  528
  550
  574
  600
  634
  664
  697
  732
  769
  809
  852
  897
  945
  996
  1,049
  1,107
  1,167
  1,231
  1,298
  1,370
  1,445
  1,524
  1,608
  1,697
Depreciation, amort., depletion, $m
  15
  15
  16
  16
  16
  16
  17
  17
  17
  18
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  25
Funds from operations, $m
  452
  462
  475
  489
  505
  524
  544
  567
  591
  618
  644
  675
  708
  744
  782
  822
  865
  911
  959
  1,011
  1,066
  1,123
  1,185
  1,249
  1,318
  1,390
  1,466
  1,547
  1,632
  1,721
Change in working capital, $m
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
Cash from operations, $m
  451
  462
  474
  488
  505
  523
  544
  566
  590
  617
  643
  674
  707
  743
  780
  821
  864
  909
  958
  1,009
  1,064
  1,121
  1,182
  1,247
  1,315
  1,387
  1,463
  1,544
  1,629
  1,718
Maintenance CAPEX, $m
  -8
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
New CAPEX, $m
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from investing activities, $m
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -20
  -20
  -21
  -23
  -23
  -25
  -26
  -28
  -28
  -30
  -31
  -33
  -34
  -36
Free cash flow, $m
  443
  452
  464
  478
  494
  512
  531
  553
  577
  603
  629
  659
  691
  726
  763
  802
  844
  889
  936
  987
  1,040
  1,097
  1,156
  1,220
  1,287
  1,357
  1,432
  1,511
  1,594
  1,682
Issuance/(repayment) of debt, $m
  8
  10
  12
  13
  14
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  56
  59
  62
  66
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
Cash from financing (excl. dividends), $m  
  8
  10
  12
  13
  14
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  56
  59
  62
  66
Total cash flow (excl. dividends), $m
  451
  462
  476
  491
  508
  527
  549
  572
  597
  624
  652
  683
  717
  754
  792
  834
  877
  924
  973
  1,026
  1,081
  1,140
  1,202
  1,268
  1,338
  1,411
  1,488
  1,570
  1,656
  1,747
Retained Cash Flow (-), $m
  -10
  -11
  -12
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
Prev. year cash balance distribution, $m
  1,253
  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
  1,695
  451
  463
  477
  493
  510
  530
  552
  575
  601
  627
  657
  689
  724
  761
  800
  842
  886
  934
  984
  1,037
  1,093
  1,153
  1,216
  1,283
  1,353
  1,428
  1,506
  1,589
  1,677
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
  1,625
  413
  403
  393
  382
  370
  358
  345
  331
  315
  298
  280
  262
  243
  223
  203
  183
  163
  144
  125
  107
  91
  76
  62
  50
  39
  31
  23
  17
  13
Current shareholders' claim on cash, %
  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
  100.0

Nektar Therapeutics is a biopharmaceutical company that discovers and develops medicines in areas of high unmet medical need. The Company's research and development pipeline of new investigational drugs includes treatments for cancer, auto-immune disease and chronic pain. It leverages its chemistry platform to discover and design new drug candidates. These drug candidates utilize its polymer conjugate technology platforms, which are designed to enable the development of new molecular entities that target known mechanisms of action. Its programs include Immuno-oncology (I-O), Immunology, Pain-NKTR-181 and Oncology-ONZEALD. It is developing medicines designed to directly or indirectly modulate the activity of key immune cells, such as cytotoxic T cells and Natural Killer (NK) cells, to increase their numbers and improve their function to recognize and attack cancer cells.

FINANCIAL RATIOS  of  Nektar Therapeutics (NKTR)

Valuation Ratios
P/E Ratio -16.9
Price to Sales 15.8
Price to Book 29.6
Price to Tangible Book
Price to Cash Flow -22.3
Price to Free Cash Flow -21.2
Growth Rates
Sales Growth Rate -28.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45.5%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 130
Current Ratio 0.1
LT Debt to Equity 279.5%
Total Debt to Equity 283%
Interest Coverage -6
Management Effectiveness
Return On Assets -24.9%
Ret/ On Assets - 3 Yr. Avg. -15.4%
Return On Total Capital -52.1%
Ret/ On T. Cap. - 3 Yr. Avg. -42.8%
Return On Equity -327.7%
Return On Equity - 3 Yr. Avg. -171.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 81.8%
Gross Margin - 3 Yr. Avg. 84.2%
EBITDA Margin -70.9%
EBITDA Margin - 3 Yr. Avg. -34.5%
Operating Margin -68.5%
Oper. Margin - 3 Yr. Avg. -31.7%
Pre-Tax Margin -92.7%
Pre-Tax Margin - 3 Yr. Avg. -51.6%
Net Profit Margin -93.3%
Net Profit Margin - 3 Yr. Avg. -51.8%
Effective Tax Rate -0.7%
Eff/ Tax Rate - 3 Yr. Avg. -0.2%
Payout Ratio 0%

NKTR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NKTR stock intrinsic value calculation we used $1193 million for the last fiscal year's total revenue generated by Nektar Therapeutics. The default revenue input number comes from 0001 income statement of Nektar 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 NKTR 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 NKTR is calculated based on our internal credit rating of Nektar 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 Nektar 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 NKTR stock the variable cost ratio is equal to 23.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $300 million in the base year in the intrinsic value calculation for NKTR 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 8.8% for Nektar Therapeutics.

Corporate tax rate of 27% is the nominal tax rate for Nektar 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 NKTR 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 NKTR are equal to 7.2%.

Life of production assets of 11.5 years is the average useful life of capital assets used in Nektar 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 NKTR is equal to 1.7%. 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 - $1717.575 million for Nektar 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 174.219 million for Nektar 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 Nektar Therapeutics at the current share price and the inputted number of shares is $3.0 billion.

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