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How Does Incyte’s Valuation Compare to Peers?

Mike Benson

What's Driving Incyte’s Valuation?

Incyte’s valuation

Incyte, a Delaware-based biopharmaceutical company, is focused on developing and commercializing oncology products to cater to unmet medical needs. As of April 6, 2016, Incyte (INCY) was trading at a forward PE (price-to-earnings) multiple of 109.7x as compared to the industry average of ~45.3x. Over the last year, the company’s forward PE has traded in the range of 94.4x and 441.8x. The company is trading at a much higher PE as compared to its peers including Vertex Pharmaceuticals (VRTX), Amag Pharmaceuticals (AMAG), and Enanta Pharmaceuticals (ENTA), which are trading at PEs of 33.8x, 4.5x, and 58.5x, respectively.

The fundamental factors affecting stock prices and valuations include the performance of existing products, new and existing collaborations, and other factors like the results of clinical trials and product approvals. This series covers the performance of Incyte’s existing product as well as other factors driving revenues for the company.

Forward PE

From an investor’s point of view, the two best valuation multiples used for valuing companies like Incyte are forward PE and EV/EBITDA multiples, considering the relatively stable and visible nature of their earnings. PE multiples represent what one share can buy for an equity investor. In the case of Incyte, PE multiples are high compared to its peers from the biotechnology industry.

Forward EV/EBITDA

On a capital structure neutral and excess cash adjusted basis, Incyte currently trades at ~79.7x, which is much higher than the industry’s average of ~22.1x. Other competitors such as Vertex Pharmaceuticals (VRTX), Amag Pharmaceuticals (AMAG), and Enanta Pharmaceuticals (ENTA) have forward EV/EBITDA multiples of 33.5x, 6.0x, and 9.9x, respectively.

Stock price performance

As of April 6, 2016, Incyte’s stock value has decreased by 8.4% over the last 12 months while that of the PowerShares Dynamic Biotech and Genome ETF (PBE) have declined by ~24.1% during the same period. PBE holds 4.7% of its total assets in Incyte while it holds ~4.9% in BioMarin Pharmaceuticals (BMRN) and 4.8% in Alexion Pharmaceuticals (ALXN).

Analyst recommendations

Analysts estimate that the stock has the potential to return ~12.1% over the next 12 months. Analysts’ recommendations show a 12-month targeted price of $91.75 per share compared to the last price of $81.87 per share as of April 6, 2016. Also, 90% of analysts recommend a “buy” and 10% of analysts recommend a “hold,” according to Bloomberg’s consensus. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.

Investors can consider ETFs like the First Trust NYSE Arca Biotechnology Index Fund (FBT), which holds ~3.2% of its total assets in Incyte, in order to divest the risk.

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