Yahoo Finance Is There An Opportunity With Progenics Pharmaceuticals Inc’s (NASDAQ:PGNX) 21% Undervaluation?
In this article I am going to calculate the intrinsic value of Progenics Pharmaceuticals Inc (NASDAQ:PGNX) using the discounted cash flows (DCF) model. 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. If you are reading this after June 2018 then I highly recommend you check out the latest calculation for Progenics Pharmaceuticals here.
Crunching the numbers
I will be using the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To start off, I took the analyst consensus forecast of PGNX’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 11.1%. This resulted in a present value of 5-year cash flow of US$95.44M. Want to understand how I arrived at this number? Read 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 an idea of PGNX’s outlook. Secondly, I determine 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 stable growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes US$719.13M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$814.57M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $11.05, which, compared to the current share price of $8.7, we find that Progenics Pharmaceuticals is about right, perhaps slightly undervalued at a 21.27% discount to what it is available for right now.
Next Steps:
Whilst important, DCF calculation 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 compiled three key aspects you should further research:
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.
