Progenics Pharmaceuticals Inc (NASDAQ:PGNX) Is Trading At A 41.88% Discount To Its Intrinsic Value
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Progenics Pharmaceuticals Inc (NASDAQ:PGNX) as an investment opportunity. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after March 2018 then I highly recommend you check out the latest calculation for Progenics Pharmaceuticals here.
Is PGNX fairly valued?
I’ve used the 2-stage growth 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 begin, I took the analyst consensus forecast of PGNX’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 11.97%. This resulted in a present value of 5-year cash flow of US$123.63M. Want to know how I calculated this value? Take a look at our detailed analysis here.
Above is a visual representation of how PGNX’s earnings are expected to move going forward, which should give you some color on PGNX’s outlook. Now we need to calculate the terminal value, which accounts for all the future cash flows after the five years. I’ve decided to use the 10-year government bond rate of 2.8% as the steady 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 US$685.20M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$808.82M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $11.51, which, compared to the current share price of $6.69, we see that Progenics Pharmaceuticals is quite undervalued at a 41.88% discount to what it is available for right now.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For PGNX, I’ve put together three important aspects you should further examine:
Financial Health: Does PGNX have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does PGNX’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of PGNX? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock 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.
