Running Biogen (BIIB) Through the Ben Graham Analysis

Biogen does not have the profile of a defensive investment based on the requirements of Ben Graham. The Biotechnology firm may nonetheless be of interest to more risk-oriented investors who have a solid thesis on the company's future growth. At Market Inference, we remain agnostic as to such further developments, and prefer to use a company's past track record as the bellwether for future potential gains.

Biogen Is Probably Overvalued

Graham devised the below equation to give investors a quick way of determining whether a stock is trading at a fair multiple of its earnings and its assets:

√(22.5 * 6 year average earnings per share (20.09) * 6 year average book value per share (99.91) = $202.53

After an impressive 31.0% performance over the 12 months, Biogen is now trading well over its price because its Graham number is 29.4% above today's share price of $262.13. Even though the stock does not trade at an attractive multiple, it might still meet some of the other criteria for quality stocks that Graham listed in Chapter 14 of The Intelligent Investor.

Positive Retained Earnings From 2008 To 2022, No Dividend Record, and Eps Growth In Excess Of Graham'S Requirements

Ben Graham wrote that an investment in a company with a record of positive retained earnings could contribute significantly to the margin of safety. Biogen had positive retained earnings from 2008 to 2022 with an average of $9.77 Billion over this period.

Another one of Graham's requirements is for a 30% or more cumulative growth rate of the company's earnings per share over the last ten years.To determine Biogen's EPS growth over time, we will average out its EPS for 2007, 2008, and 2009, which were $1.99, $2.65, and $1.06 respectively. This gives us an average of $1.90 for the period of 2007 to 2009. Next, we compare this value with the average EPS reported in 2020, 2021, and 2022, which were $24.80, $10.40, and $20.87, for an average of $18.69. Now we see that Biogen's EPS growth was 883.68% during this period, which satisfies Ben Graham's requirement.

We have no record of Biogen offering a regular dividend.

Biogen’s Balance Sheet Meets Graham’s Criteria

It was also essential to Graham that the company’s current assets outweigh its current liabilities, and that its long term debt be inferior to the sum of its net current assets (current assets minus total liabilities). This is the aspect of the analysis that most companies fail, yet Biogen passes comfortably, with an average current ratio of 3.0, and average debt to net current asset ratio of -4.6.

Conclusion

According to Graham's analysis, Biogen is likely a company of average quality, which does not offer a significant enough margin of safety for a risk averse investor.

2018-02-01 2019-02-06 2020-02-06 2021-02-03 2022-02-03 2023-02-15
Revenue (MM) $12,274 $13,453 $14,378 $13,445 $10,982 $10,173
Gross Margins 87.0% 86.0% 86.0% 87.0% 81.0% 78.0%
Operating Margins 45% 46% 54% 38% 34% 32%
Net Margins 21.0% 33.0% 41.0% 30.0% 14.0% 30.0%
Net Income (MM) $2,539 $4,431 $5,888 $4,001 $1,556 $3,047
Earnings Per Share $11.92 $21.58 $31.42 $24.8 $10.47 $20.37
EPS Growth n/a 81.04% 45.6% -21.07% -57.78% 94.56%
Diluted Shares (MM) 213 205 187 161 149 150
Free Cash Flow (MM) $6,394 $6,961 $7,748 $4,707 $3,917 $1,045
Capital Expenditures (MM) -$1,843 -$774 -$670 -$477 -$277 $339
Net Current Assets (MM) -$3,181 -$4,616 -$5,513 -$7,046 -$5,061 -$1,374
Long Term Debt (MM) $5,935 $5,936 $4,459 $7,426 $6,274 $6,281
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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