First Cut Stock Study Report

Transcription

1 First Cut Stock Study Report Company Name: Biogen Inc. Ticker: BIIB Date of Study: 11/15/2016 (price date 11/14/2016) Price: Your Name: address: Suzi Artzberger City: Madison Heights State: MI Chapter Name (if applicable): BetterInvesting Home Office Discuss why you consider this to be a high quality, growth company that should be investigated further. Please include comments on historical sales and EPS growth, pre-tax profit margin, return on equity, and debt. BIIB is a large sized company and has experienced robust historical 10 year revenue growth of 15.5%, 5 year growth of 23.1% and quarter over quarter sales growth of 6.4% This company compares favorably with my chosen peers (GILD, NVO, and CELG). BIIB earnings have grown 34.5% on an annualized basis over the last 10 years, 34.9% for the last 5 years. The quarter over quarter growth has slowed dramatically but the company is entering a different phase of growth and the December 2014 financials were extremely positive making comparisons tough between Dec 2015 and Dec The last quarter over quarter sales growth was 13.5% Between 2008 and 2011, the company had a period of slower revenue growth and still managed to achieve over 7% revenue growth so in the context of this being a large company I am satisfied with their growth prospects. With the exception of GILD, BIIB is on par with or is better than the comparable pre-tax profit margins of its peer group. The % PTP numbers have also grown consistently in the past 5 years. BIIB is showing an acceptable return on equity with a five-year average of 24.3%, which has grown every year. This compares favorably with CELG but is far below the stratospheric values achieved by GILD and NVO. Biogen took on debt in 2015 to fund a large share repurchase and for working capital. This brought their percentage of debt to capital for the last fiscal year to 41% which a deviation from their previous trends. The share repurchase is complete and I am comfortable with the company s previous debt management that this is acceptable to me. This debt ratio has gone down in every subsequent quarter and is now 35%

2 Factors that move the price on this stock: The price (market) response to periods of lower and higher growth means we see some cyclicality in the prices over time. In general, however, revenue, earnings and prices have risen together throughout the last ten years. - Company results the company reported great results on 7/21 and good results on 10/26 and the stock price increased each time - Results of drug trials the company stock price decreased in June because the company reported that a Phase 2 drug trial for opicinumab failed to prove its primary and secondary endpoint/goals. - Takeover/buyout news there was speculation that BIIB was a candidate for a buyout by Allergan or Merck. This raised the stock price in early August. - Two other factors affecting the prices can be the general rise or fall of the market or prices of other similar stocks for example, recent sentiment against extremely high drug prices or recent the election results suggesting less emphasis on reining in drug prices. Latest news: This company is in the process of a capital structure change as well as realignment/replacement of many positions in top management: - April 2016 company announces executive VP of strategy and business development is leaving - May 2016 announcement that hemophilia business will be spun off as a separate, publically traded company. Investors will receive tax free shares in new company effective end of 2016 or early Executive VP of pharmaceutical operations and technology will leave to be CEO of new hemophilia company. BIIB company plans to concentrate on neurological diseases. - July 2016 CEO stepping down and search for replacement in progress. Old CEO will remain on the board of directors - October 2016 CEO search underway no timeline yet Biogen will be spinning off their hemophilia business in early 2017 to form a new publically traded company called Bioverativ (BIVV). This business accounts for about 7% of total revenues. Briefly describe how the company makes money: (From BI Stock Data Service) Biogen Inc. is a biopharmaceutical company. It is engaged in discovering, developing, manufacturing and delivering therapies to patients for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. (From the company's 10-K annual report)

3 Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for multiple sclerosis (MS), ELOCTATE for hemophilia A and ALPROLIX for hemophilia B, and FUMADERM for the treatment of severe plaque psoriasis. We also have a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group (Roche Group), which entitles us to certain business and financial rights with respect to RITUXAN for the treatment of non-hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of CLL, and other potential anti-cd20 therapies. We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities, particularly within areas of our scientific, manufacturing and technical expertise and scientific adjacencies. In addition to our innovative drug development efforts, we aim to leverage our manufacturing capabilities and scientific expertise to extend our mission to improve the lives of patients living with serious diseases through the development, manufacture and marketing of biosimilars through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Projected growth rate for sales: 5.0% Why did you select this rate? Discuss from where future growth will come. My projected growth rate of 5.0% takes into account their recent slowing growth, their performance of 7% in their last period of slow growth and the company s near term guidance of 4% growth for the next fiscal year. I also took into account the Yahoo sales estimates (7.1% this FY, 3.5% next year) and the analyst estimate for revenue as provided in the tool (5.2%). Projected growth rate for earnings per share: 6.3% Why did you select this rate? My earnings per share growth rate of 6.3% was determined by comparing three reference points; the Preferred Procedure calculation, the company s short term EPS guidance of 9.8%-11.8% and Wall Street analyst estimates. For the Preferred Procedure, I adjusted the %pre-tax profit margin to 46% to reflect their more recent margins and additionally considered the company s guidance that they would be increasing margins another 2% by reducing expenses related to research and development (R&D) as well as sales, general and administrative expenses (SG&A). I also adjusted the shares outstanding from to 214 to reflect the company s trend of continued share repurchases. This resulted in a 6.0% projected growth rate for EPS. This was close enough to my prior judgment of 6.3% that I kept the 6.3% The company did not provide long-term growth guidance. Wall Street estimates for long-term EPS growth were 8.7% in the tool and 8.9% from Yahoo. I chose to

4 use the preferred procedure value as a relatively conservative number compared to other estimates in light of the decreasing top line performance. Projected High P/E: 22.0 Why did you select this value? I previously noted that the company was trading near the bottom of its 52-week range. The current P/E is In my opinion, the recent historical P/E s and average high P/E of 30 are much too high and reflect recent higher years of higher growth. I went back farther into historical P/E data, looked at that period from , and noted the average was (See graph) I rounded down from 22.6 to 22.0

5 Projected Low P/E: 13.0 Why did you select this value? Using a similar logic as for the High P/E forecast, I considered the last 5 years to represent higher P/E values than we might see going forward. I looked at 2008 to 2011 and found they averaged to I rounded up to 13. Projected Low Price: $230.1 Why did you select this value? The low PE value of 13.0 multiplied by the last 4 quarter EPS of provides a low stock price of I compared this to the last 52 weeks and the last year and this seems reasonable. The current price is At the current price, the stock is a (check one): Buy or Hold or Sell At the current price, the upside-downside ratio is: 2.3 to 1 Compound Annual Return Using Forecast High P/E: 10.5% Your final recommendation (check one): Explain: Buy or Hold or Sell BIIB looks like a company that would interest me in rounding out my portfolio with a company from the Health Care sector. As always, before I put investment dollars towards buying this stock or choosing to keep it in my portfolio, I compare it to other stocks in my portfolio and other worthy stocks like GILD, CELG, SHPG and NVO using the Stock Comparison Guide.

6 Stock Selection Guide Company Biogen Date 11/14/16 Prepared by ARTZBERGER Data taken from BI Stock Data Where traded NAS Industry Biotechnology Capitalization --- Outstanding Amounts Reference Preferred ($M) Insiders % Institution Common (M Shares) Debt ($M) 6,534.5 % to Tot Cap 35.0 % Pot Dil VISUAL ANALYSIS of Sales, Earnings, and Price Symbol: BIIB FY 2016 Q3 Latest Quarter Year Ago Quarter Percentage Change Sales ($M) 2,956 2, % Earnings Per Share % (1) Historical Sales Growth 15.5% (3) Historical Earnings Per Share Growth 34.5% (2) Estimated Future Sales Growth 5.0% (4) Estimated Future Earnings Per Share Growth 6.3%

7 2 EVALUATING Management 5 5-YEAR POTENTIAL This combines price appreciation with dividend yield to get an estimate of total return. It provides a standard for comparing income and growth stocks. A Indicated Annual Dividend Closing Price B AVERAGE YIELD - USING FORECAST HIGH P/E Avg. % Payout Forecast High PE C COMPOUND ANNUAL RETURN - USING FORECAST HIGH P/E Annualized Appreciation Average Yield Annualized Rate of Return 10.5 % 10.5 % Current Yield AVERAGE YIELD - USING FORECAST AVERAGE P/E Avg. % Payout Forecast Average PE COMPOUND ANNUAL RETURN - USING FORECAST AVG P/E Annualized Appreciation Average Yield Annualized Rate of Return 5.5 % 5.5 % Biogen Last 5 Year Avg. Pre-tax Profit on Sales 18.3% 28.7% 28.0% 30.4% 26.1% 33.9% 33.6% 35.8% 40.7% 44.3% 37.7% % Earned on Equity 3.0% 10.7% 13.2% 14.8% 17.6% 19.6% 19.6% 22.7% 27.8% 31.7% 24.3% % Debt To Capital 1.3% 22.0% 16.1% 15.0% 18.2% 14.2% 14.1% 6.5% 5.1% 41.0% 16.2% 3 PRICE-EARNINGS HISTORY as an indicator of the future This shows how stock prices have fluctuated with earnings and dividends. It is building block for translating earnings into future stock prices. CLOSING PRICE (11/14/16) HIGH THIS YEAR LOW THIS YEAR A B C D E F G H Year Price Earnings Price Earnings Ratio Dividend % Payout % High Yield High Low Per Share High A / C Low B / C Per Share F / C * 100 F / B * AVERAGE CURRENT/TTM AVERAGE PRICE EARNINGS RATIO: 23.8 CURRENT PRICE EARNINGS RATIO: EVALUATING RISK and REWARD over the next 5 years Assuming one recession and one business boom every 5 years, calculations are made of how high and how low the stock might sell. The upside-downside ratio is the key to evaluating risk and reward. A HIGH PRICE - NEXT 5 YEARS Avg. High P/E 22.0 X Estimate High Earnings/Share Forecasted High Price $ B LOW PRICE - NEXT 5 YEARS (a) Avg. Low P/E (b) Avg. Low Price of Last 5 Years (c) Recent Market Low Price (d) Price Dividend Will Support 13.0 X Estimate Low Earnings/Share Forecasted Low Price $ Indicated Dividend High Yield Selected Forecasted Low Price $ C ZONING using 25%-50%-25% Forecasted High Price Minus Forecasted Low Price Range. 25% of Range 74.6 Buy Zone Hold Zone Sell Zone % to to to Present Market Price of is in the HOLD Zone D UPSIDE DOWNSIDE RATIO (POTENTIAL GAIN VS. RISK OR LOSS) High Price Minus Present Price Present Price Minus Low Price To 1 E PRICE TARGET (Note: This shows the potential market price appreciation over the next five years in simple interest terms.) High Price Closing Price X % Appreciation 0.0