Intrinsic value of PDL BioPharma, Inc. - PDLI

Previous Close

$3.58

  Intrinsic Value

$22.84

stock screener

  Rating & Target

str. buy

+538%

Previous close

$3.58

 
Intrinsic value

$22.84

 
Up/down potential

+538%

 
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

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 0.5

 

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, %
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
Revenue, $m
  346
  374
  402
  431
  462
  494
  527
  561
  597
  634
  673
  714
  756
  800
  845
  893
  943
  995
  1,050
  1,107
  1,167
  1,229
  1,294
  1,363
  1,434
  1,510
  1,588
  1,670
  1,757
  1,847
Variable operating expenses, $m
  50
  52
  55
  57
  60
  62
  65
  68
  71
  74
  56
  59
  62
  66
  70
  74
  78
  82
  87
  91
  96
  101
  107
  112
  118
  125
  131
  138
  145
  152
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
  132
  136
  140
  144
  149
  153
  158
  163
  168
  173
  158
  163
  168
  174
  181
  187
  194
  200
  208
  215
  222
  230
  239
  247
  256
  266
  275
  285
  295
  306
Operating income, $m
  214
  238
  262
  287
  313
  340
  369
  398
  429
  461
  516
  551
  587
  625
  665
  706
  750
  795
  842
  892
  944
  999
  1,056
  1,116
  1,178
  1,244
  1,313
  1,386
  1,461
  1,541
EBITDA, $m
  250
  274
  299
  326
  353
  381
  411
  442
  474
  508
  543
  579
  617
  657
  698
  742
  787
  834
  884
  936
  990
  1,047
  1,107
  1,169
  1,235
  1,304
  1,376
  1,451
  1,531
  1,614
Interest expense (income), $m
  11
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  82
  86
  91
  96
  101
  106
  112
  118
  124
Earnings before tax, $m
  194
  215
  237
  260
  284
  309
  335
  363
  391
  420
  473
  505
  538
  573
  610
  648
  688
  729
  773
  819
  867
  917
  970
  1,025
  1,083
  1,143
  1,207
  1,274
  1,344
  1,417
Tax expense, $m
  52
  58
  64
  70
  77
  84
  91
  98
  106
  114
  128
  136
  145
  155
  165
  175
  186
  197
  209
  221
  234
  248
  262
  277
  292
  309
  326
  344
  363
  383
Net income, $m
  141
  157
  173
  190
  208
  226
  245
  265
  285
  307
  345
  368
  393
  418
  445
  473
  502
  533
  564
  598
  633
  669
  708
  748
  790
  835
  881
  930
  981
  1,035

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
  783
  845
  909
  976
  1,045
  1,117
  1,192
  1,270
  1,351
  1,435
  1,523
  1,614
  1,710
  1,809
  1,913
  2,021
  2,134
  2,252
  2,376
  2,505
  2,640
  2,781
  2,929
  3,083
  3,245
  3,415
  3,593
  3,779
  3,975
  4,179
Adjusted assets (=assets-cash), $m
  783
  845
  909
  976
  1,045
  1,117
  1,192
  1,270
  1,351
  1,435
  1,523
  1,614
  1,710
  1,809
  1,913
  2,021
  2,134
  2,252
  2,376
  2,505
  2,640
  2,781
  2,929
  3,083
  3,245
  3,415
  3,593
  3,779
  3,975
  4,179
Revenue / Adjusted assets
  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
  0.442
  0.442
  0.442
  0.442
Average production assets, $m
  124
  134
  144
  155
  166
  177
  189
  202
  214
  228
  242
  256
  271
  287
  304
  321
  339
  357
  377
  397
  419
  441
  465
  489
  515
  542
  570
  600
  631
  663
Working capital, $m
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
Total debt, $m
  265
  288
  312
  337
  363
  390
  418
  447
  478
  509
  542
  576
  612
  649
  688
  728
  770
  815
  861
  909
  960
  1,012
  1,068
  1,126
  1,186
  1,250
  1,316
  1,386
  1,459
  1,535
Total liabilities, $m
  293
  316
  340
  365
  391
  418
  446
  475
  505
  537
  570
  604
  639
  677
  715
  756
  798
  842
  888
  937
  987
  1,040
  1,095
  1,153
  1,214
  1,277
  1,344
  1,413
  1,487
  1,563
Total equity, $m
  490
  529
  569
  611
  654
  699
  746
  795
  846
  898
  953
  1,011
  1,070
  1,133
  1,197
  1,265
  1,336
  1,410
  1,487
  1,568
  1,652
  1,741
  1,833
  1,930
  2,032
  2,138
  2,249
  2,366
  2,488
  2,616
Total liabilities and equity, $m
  783
  845
  909
  976
  1,045
  1,117
  1,192
  1,270
  1,351
  1,435
  1,523
  1,615
  1,709
  1,810
  1,912
  2,021
  2,134
  2,252
  2,375
  2,505
  2,639
  2,781
  2,928
  3,083
  3,246
  3,415
  3,593
  3,779
  3,975
  4,179
Debt-to-equity ratio
  0.540
  0.550
  0.550
  0.550
  0.560
  0.560
  0.560
  0.560
  0.560
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.590
  0.590
  0.590
  0.590
Adjusted equity ratio
  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
  141
  157
  173
  190
  208
  226
  245
  265
  285
  307
  345
  368
  393
  418
  445
  473
  502
  533
  564
  598
  633
  669
  708
  748
  790
  835
  881
  930
  981
  1,035
Depreciation, amort., depletion, $m
  35
  36
  37
  39
  40
  41
  42
  44
  45
  47
  27
  28
  30
  32
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  57
  60
  63
  66
  69
  73
Funds from operations, $m
  177
  193
  211
  229
  247
  267
  287
  308
  331
  354
  372
  397
  423
  450
  478
  508
  539
  572
  606
  641
  679
  718
  759
  802
  847
  894
  944
  996
  1,050
  1,107
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from operations, $m
  178
  194
  212
  230
  249
  268
  289
  310
  332
  355
  373
  398
  424
  452
  480
  510
  541
  574
  608
  644
  681
  720
  761
  805
  850
  897
  947
  999
  1,054
  1,111
Maintenance CAPEX, $m
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
New CAPEX, $m
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
Cash from investing activities, $m
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -61
  -65
  -68
  -71
  -76
  -80
  -84
  -88
  -93
  -97
  -101
Free cash flow, $m
  155
  171
  187
  203
  221
  239
  257
  277
  297
  318
  334
  357
  381
  406
  432
  459
  488
  518
  549
  582
  616
  652
  690
  729
  770
  814
  859
  907
  957
  1,009
Issuance/(repayment) of debt, $m
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  67
  70
  73
  77
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  
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  67
  70
  73
  77
Total cash flow (excl. dividends), $m
  177
  194
  211
  228
  247
  265
  285
  306
  327
  350
  367
  391
  417
  443
  471
  500
  530
  562
  595
  630
  667
  705
  745
  787
  831
  877
  925
  976
  1,030
  1,086
Retained Cash Flow (-), $m
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -93
  -97
  -101
  -106
  -111
  -117
  -122
  -128
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
  533
  155
  171
  187
  203
  220
  238
  257
  277
  297
  312
  334
  357
  381
  406
  432
  460
  488
  518
  549
  582
  616
  652
  690
  729
  771
  814
  860
  907
  958
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
  511
  142
  149
  154
  157
  160
  161
  161
  159
  156
  148
  143
  136
  128
  119
  110
  100
  90
  80
  70
  60
  51
  43
  35
  28
  22
  17
  13
  10
  7
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

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, Inc. (PDLI)

Valuation Ratios
P/E Ratio 9.3
Price to Sales 2.4
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 14.1
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 million for the last fiscal year's total revenue generated by PDL BioPharma, Inc.. The default revenue input number comes from 0001 income statement of PDL BioPharma, Inc.. 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 8.2% 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, Inc., 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, Inc..
    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, Inc..

Corporate tax rate of 27% is the nominal tax rate for PDL BioPharma, Inc.. 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, Inc. 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, Inc. - 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 145.977 million for PDL BioPharma, Inc. 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, Inc. at the current share price and the inputted number of shares is $0.5 billion.

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