Today we're going to take a closer look at large-cap Health Care company Vertex Pharmaceuticals, whose shares are currently trading at $351.16. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Vertex Pharmaceuticals's Valuation Is in Line With Its Sector Averages:
Vertex Pharmaceuticals Incorporated, a biotechnology company, engages in developing and commercializing therapies for treating cystic fibrosis (CF). The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 24.45 and an average price to book (P/B) ratio of 4.16. In contrast, Vertex Pharmaceuticals has a trailing 12 month P/E ratio of 26.4 and a P/B ratio of 5.48.
Vertex Pharmaceuticals's PEG ratio is 2.2, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Growing Revenues With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $3,048 | $4,163 | $6,206 | $7,574 | $8,931 | $9,654 |
| Gross Margins | 21% | 28% | 46% | 37% | 48% | 40% |
| Operating Margins | 21% | 34% | 50% | 37% | 48% | 45% |
| Net Margins | 69% | 28% | 44% | 31% | 37% | 36% |
| Net Income (MM) | $2,097 | $1,177 | $2,712 | $2,342 | $3,322 | $3,470 |
| Net Interest Expense (MM) | -$1 | $192 | $297 | $5 | -$55 | -$44 |
| Depreciation & Amort. (MM) | $72 | $107 | $110 | $126 | $148 | $161 |
| Earnings Per Share | $8.09 | $4.51 | $10.29 | $9.01 | $12.82 | $13.32 |
| Diluted Shares (MM) | 259 | 261 | 263 | 260 | 259 | 264 |
| Free Cash Flow (MM) | $1,175 | $1,494 | $2,994 | $2,408 | $3,925 | $4,205 |
| Capital Expenditures (MM) | $95 | $75 | $260 | $235 | $205 | $176 |
| Net Current Assets (MM) | $2,032 | $2,590 | $5,068 | $6,228 | $8,997 | $9,482 |
| Long Term Debt (MM) | $453 | $698 | $962 | $769 | $670 | $605 |
| Net Debt / EBITDA | -3.09 | -1.58 | -1.54 | -2.06 | -2.2 | -2.34 |
Vertex Pharmaceuticals benefits from growing revenues and increasing reinvestment in the business, low leverage, and decent operating margins with a positive growth rate. The company's financial statements show positive EPS growth and generally positive cash flows. However, the firm has slimmer gross margins than its peers.
