Regeneron Pharmaceuticals Inc (REGN)

Conclusion

Regeneron Pharmaceuticals discovers, develops and commercializes medicines for eye, allergic and inflammatory, cardiovascular, neurological and other diseases. Its marketed products include EYLEA, Dupixent, Libtayo, Praluent and Kevzara. The share price is 919.96 USD, giving a market capitalisation of 93.5 billion USD and an enterprise value of 86.9 billion USD.

The verdict is fair. Today's P/E of 19.41 sits close to its ten-year median of 19.76, while EV/EBITDA of 13.91 compares with a median of 15.94 and price to book of 2.79 with a median of 4.04. The fair value band runs from 682.08 to 1,023.12 USD with a midpoint of 852.59 USD, giving a margin of safety of -7.3% at the current price. The DCF gives 660.52 USD per share on a discount rate of 8.87%. The reverse DCF implies growth of 13.19% a year, against revenue growth of 11.04% over five years.

What holds the case up is a net cash position (net debt to EBITDA of -1.06), interest coverage of 122.8 times and ROIC of 18.35% against a WACC of 8.74%. What would break it is weaker earnings conversion and slowing profit growth: free cash flow conversion is 74.5% on a trailing basis against 88.5% over five years, EPS compound growth over three years is 2.76%, and the operating margin of 29.54% is below its ten-year median of 33.13%.

Financial health

Financial strength is green, held up by a net cash position with net debt to EBITDA of -1.06, interest coverage of 122.8 times and a current ratio of 3.35. The quick ratio is 2.72 and debt to equity is 0.08, so the balance sheet carries little borrowing. The Altman Z-score is 7.59, in the safe zone. The Altman model was designed for manufacturers, so for a biotechnology company it is an indication rather than a precise measure. Insolvency risk: low, about 0.01% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green, supported by a Beneish M-score of -2.51, which is read as unlikely to signal manipulation, and by a share count that fell at a five-year compound rate of -1.16%, reflecting buybacks. Free cash flow conversion is 74.5% on a trailing basis and 88.5% over five years, and the accrual ratio is -1.21%, which points to cash-backed earnings. Stock-based compensation equals 5.95% of revenue, and free cash flow after it is 2.58 billion USD. The Piotroski score is 5 of 9. Over the last eight quarters the company beat estimates seven times, with an average surprise of 22.95%. Current-year estimates rose 29.7% over ninety days with 14 upward revisions and no downward ones in the last thirty days.

Profitability

Profitability is green. The operating margin is 29.54% against a ten-year median of 33.13%, and the net margin is 28.51% against 31.24%. The gross margin is 85.77% against a median of 88.09%. Margin stability over the year is 25.85%. ROIC is 18.35% against a WACC of 8.74%, and the given ROIC minus WACC value is 9.61%, which the company is creating value. The five-year median ROIC is 19.55%. Return on equity is 14.38%. The DuPont split shows a net margin of 31.41%, an asset turnover of 0.35 and an equity multiplier of 1.30, so the return is driven by margins rather than leverage.

Growth

Growth is green. Revenue compounds at 5.62% over three years, 11.04% over five years and 13.33% over ten years. Revenue grew in nine of the last ten comparable years. EPS compounds more slowly, at 2.76% over three years, 6.33% over five years and 22.35% over ten years. Free cash flow per share fell at 1.22% a year over three years but rose at 16.64% over five years. Consensus expects next-year EPS growth of 2.87%, so near-term earnings growth is expected to be modest.

Valuation

Valuation is yellow, with a verdict of fair and a margin of safety of -7.3%. Against their ten-year medians, price to book is 2.79 against 4.04, EV/EBITDA 13.91 against 15.94, price to sales 5.53 against 6.54 and P/E 19.41 against 19.76. Price to free cash flow is 26.06 against 24.13. The DCF gives 660.52 USD per share on a discount rate of 8.87%, with 59.4% of the value in the terminal value. The fair value from historical multiples is 1,044.67 USD. The reverse DCF implies growth of 13.19% a year, against 11.04% revenue growth over five years and 16.64% free cash flow per share growth. The dividend yield is 0.41% and the payout on free cash flow is 10.68%. The fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target.

Risks

The main weakness is slowing earnings growth. The three-year EPS compound rate of 2.76% and next-year growth of 2.87% leave little room for the price to rise without faster profit growth. Lower free cash flow conversion, at 74.5% against 88.5% over five years, would reduce the cash behind reported earnings. A Piotroski score of 5 of 9 and an operating margin below its median would leave less room for error if revenue growth slowed. The DCF depends on 59.4% of its value in the terminal value, so small changes in long-term assumptions would move the result. No values are missing from this analysis. The analysis does not include a debt maturity schedule or revenue by segment, which would be needed to judge refinancing risk and product concentration.