Estimating The Fair Value Of Progenics Pharmaceuticals Inc (PGNX)
I am going to run you through how I calculated the intrinsic value of Progenics Pharmaceuticals Inc (NASDAQ:PGNX) using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. Also note that this article was written in November 2017 so be sure check the latest calculation for Progenics Pharmaceuticals here.
Is PGNX fairly valued?
I use what is known as the 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To start off, I took the analyst consensus estimates of PGNX’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 13.45%. This resulted in a present value of 5-year cash flow of $-3M. Want to understand how I arrived at this number? Check out our detailed analysis here.
Above is a visual representation of how PGNX’s earnings are expected to move in the future, which should give you some color on PGNX’s outlook. Secondly, I calculate the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is $384M.
The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is $381M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $5.42, which, compared to the current share price of $5.59, we see that Progenics Pharmaceuticals is fair value, maybe slightly overvalued and not available at a discount at this time.
Next Steps:
Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company.
For PGNX, I’ve compiled three important aspects you should further research:
PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
