Biogen Inc (BIIB, Financial) experienced a daily loss of 1.56% and a three-month loss of 10.51%. Despite these losses, the company's Earnings Per Share (EPS) (EPS) stands at 18.37. This raises the question: is Biogen modestly overvalued? This article provides a detailed valuation analysis of Biogen to answer this question. Read on to explore the company's financial health, profitability, growth, and intrinsic value.
Company Overview
Biogen and Idec merged in 2003, combining forces to market Biogen's multiple sclerosis drug Avonex and Idec's cancer drug Rituxan. Today, the company markets a range of novel drugs and has several drug candidates in phase 3 trials in neurology and neurodegenerative diseases. With a current stock price of $253.67 and a market cap of $36.70 billion, Biogen's valuation needs a closer look.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, GuruFocus adjustment factors, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, affecting future returns.
According to GuruFocus' valuation method, Biogen (BIIB, Financial) appears to be modestly overvalued. Given this overvaluation, the long-term return of its stock is likely to be lower than its business growth.
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Assessing Biogen's Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Biogen's cash-to-debt ratio of 0.92 ranks better than 51.23% of 1058 companies in the Drug Manufacturers industry, suggesting a fair balance sheet.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Biogen has been profitable for 10 out of the past 10 years, with an operating margin of 24.99%, ranking better than 91.15% of 1051 companies in the Drug Manufacturers industry. However, the average annual revenue growth of Biogen is -3.2%, ranking worse than 75.76% of 924 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Biogen's ROIC was 12.88, while its WACC came in at 4.43.
Conclusion
In conclusion, Biogen (BIIB, Financial) appears to be modestly overvalued. Although the company's financial condition is fair and its profitability is strong, its growth ranks worse than 77.68% of 887 companies in the Drug Manufacturers industry. For more information about Biogen stock, check out its 30-Year Financials here.
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