Neurocrine Biosciences Inc (NBIX, Financial) recently recorded a daily gain of 2.78%, marking a 19.67% gain over the past three months. With an Earnings Per Share (EPS) of 1.73, the question arises: is this stock modestly undervalued? In the following analysis, we delve into the intrinsic value of Neurocrine Biosciences, providing a comprehensive valuation assessment.
Company Overview
Neurocrine Biosciences Inc is a research-based pharmaceutical company advancing drug candidates in the central nervous system and endocrine-related categories. It has three late-stage clinical programs targeting women's health, Parkinson's disease, and Tourette syndrome. As of October 5, 2023, the stock price stood at $113.77, with a market cap of $11.10 billion. Comparing this with the GF Value of $146.49, Neurocrine Biosciences appears to be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given its current price of $113.77 per share and a market cap of $11.10 billion, Neurocrine Biosciences is estimated to be modestly undervalued. As such, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Before investing, it's crucial to assess the financial strength of a company. Companies with poor financial strength pose a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Neurocrine Biosciences has a cash-to-debt ratio of 3.53, better than 66.73% of 1040 companies in the Drug Manufacturers industry. Its overall financial strength is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Neurocrine Biosciences has been profitable for 5 of the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and Earnings Per Share (EPS) of $1.73. Its operating margin is 17.6%, which ranks better than 79.17% of 1032 companies in the Drug Manufacturers industry. Overall, the profitability of Neurocrine Biosciences is ranked 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Neurocrine Biosciences is 22.3%, which ranks better than 85.71% of 917 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth is 38.6%, which ranks better than 84.3% of 879 companies in the same industry.
ROIC vs WACC
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the return on invested capital should be higher than the weighted cost of capital. For the past 12 months, Neurocrine Biosciences's ROIC is 18.9, and its cost of capital is 5.38.
Conclusion
In summary, the stock of Neurocrine Biosciences (NBIX, Financial) is estimated to be modestly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 84.3% of 879 companies in the Drug Manufacturers industry. To learn more about Neurocrine Biosciences stock, check out its 30-Year Financials here.
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