Rating Update: Stock Rating C-Neutral (9/10/19)-Repligen Corp (RGEN).

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BUSINESS

Repligen Corporation develops, manufactures, and sells products used to enhance the interconnected phases of the biological drug manufacturing process worldwide. It offers Protein A ligands to life sciences companies, which are the binding components of Protein A affinity resins; and growth factor products used to supplement cell culture media. The company also provides chromatography products comprising OPUS pre-packed chromatography columns, which are used in the purification of antibodies and recombinant proteins; and OPUS PD smaller-scale columns that are used in the high throughput process development screening, viral validation studies, and scale down validation of chromatography processes.
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INVESTMENT RATING

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RGEN’s future returns on capital are forecasted to be in line with the cost of capital. Accordingly, the company is expected to be Value Creation neutral.

Repligen has a current Value Trend Rating of C (Neutral).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Repligen has a very low Appreciation Score of 3 but a very high Power Rating of 94, triggering the Neutral Value Trend Rating.

Repligen’s stock is selling significantly above targeted value. The current stock price of $80.57 compares to targeted value 12 months forward of $13.
Repligen’s very low appreciation potential results in an appreciation score of 3 (97% of the universe has greater appreciation potential.)
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Repligen has a Power Rating of 94. (RGEN’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 6% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; and the recent trend in RGEN’s earnings estimates has been extremely favorable. An offsetting factor is is currently in an unfavorable positi.

INVESTMENT PROFILE

Repligen’s financial strength is high. Financial strength rating is 80.
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Relative to the S&P 500 Composite, Repligen Corp has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that RGEN is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, and high earnings variability. Repligen’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. RGEN has unusually low market capitalization.

CURRENT SIGNALS

Repligen’s current operations are eroding. Return on equity is falling, reflecting: and falling tax keep rate.

Repligen’s current technical position is very strong. The stock price is in a 8.6 month up move. The stock has appreciated 90.0% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

ALERTS

Repligen Corp (NASDAQ: RGEN) has recently enjoyed small positive changes in fundamentals: significant quarterly sales acceleration occurred.
The stock is currently rated C.
Repligen Corp (NASDAQ: RGEN) stock enjoyed a major increase of 34.1% on 9/10/19. The shares closed at $3.46. Moreover, trading volume in this advance was unusually high at 171% of normal. The stock has been exceptionally strong relative to the market over the last nine months but has declined -13.2% during the last week.

CASH FLOW

In 2018, Repligen generated a significant increase in cash of +$20.06 million (+12%). Sources of cash were larger than uses. Cash generated from 2018 EBITDA totalled +$44.53 million. Non-operating uses consumed -$0.61 million (-1% of EBITDA). Cash taxes consumed -$4.90 million (-11% of EBITDA). Re-investment in the business amounted to -$23.89 million (-54% of EBITDA). On a net basis, debt investors pulled out -$2.47 million (-6% of EBITDA) while equity investors furnished +$7.40 million (+17% of EBITDA).
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Repligen’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Repligen Corp Peer Group. In most years, Repligen was in the lower quartile and top quartile. Currently, Repligen is above median at -1% of EBITDA (-$0.61 million).

Repligen’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Repligen Corp Peer Group. In most years, Repligen was in the top quartile and third quartile. Currently, Repligen is below median at -11% of EBITDA (-$4.90 million).

Repligen’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Repligen Corp Peer Group. In most years, Repligen was in the lower quartile and second quartile. Currently, Repligen is slightly below median at -54% of EBITDA (-$23.89 million).

Repligen’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Repligen Corp Peer Group. In most years, Repligen was in the third quartile and top quartile. Currently, Repligen is substantially below median at -6% of EBITDA (-$2.47 million).

Repligen’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Repligen Corp Peer Group. In most years, Repligen was in the second quartile and top quartile. Currently, Repligen is slightly above median at +17% of EBITDA (+$7.40 million).

Repligen’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Repligen Corp Peer Group. (Since 2016 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Repligen was in the top quartile and lower quartile. Currently, Repligen is below median at +45% of EBITDA (+$20.06 million).
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Repligen’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Repligen Corp Peer Group. (Since 2012 Cash, %Revenue has experienced a very sharp recovery.) In most years, Repligen was in the top quartile and second quartile. Currently, Repligen is above median at +100%.

PROFITABILITY

Repligen’s return on equity reached a new post-2012 low in 2019.
This was due to very strong negative trend in pretax operating return offset by very strong positive trend in non-operating factors.
The productivity of Repligen’s assets declined over the full period 2009-2019: asset turnover has suffered a volatile overall downtrend.
Reinforcing this trend, pretax margin experienced a very strong overall downtrend but it experienced a very sharp recovery after the 2017 low.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
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Repligen’s return on equity is at the lower quartile (3.0%) for the four quarters ended June, 2019.
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Operating performance (pretax return on assets) is at median (3.1%) reflecting asset turnover that is lower quartile (0.22X) and above median pretax margin (14.4%).
Tax “keep” rate (income tax management) is below median (79.0%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is lower quartile (1.22X).

GROWTH RATES

There are no significant differences between Repligen’s longer term growth and growth in recent years.
Repligen’s historical income statement growth has been lower than balance sheet growth. Revenue growth has fallen short of asset growth; earnings growth has fallen short of equity growth.

Annual revenue growth has been 22.2% per year.

Total asset growth has been 28.8% per year.

Annual E.P.S. growth has been 9.0% per year.

Equity growth has been 26.1% per year.

Repligen’s consensus growth rate forecast (average of Wall Street analysts) is 25.0% — above the average of the historical growth measures.
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Relative to the Repligen Corp Peer Group, Repligen’s historical growth measures are generally top quartile. Revenue growth (22.2%) has been upper quartile. Total asset growth (28.8%) has been upper quartile. Equity growth (26.1%) has been upper quartile. E.P.S. growth (9.0%) has been above median.

Consistent with this pattern, consensus growth forecast (25.0%) is also at the upper quartile.
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PRICE HISTORY

Over the full time period, Repligen’s stock price performance has been variable and exceptional. Between November, 2008 and September, 2019, Repligen’s stock price rose +1966%; relative to the market, this was a +521% gain. Significant price moves during the period: 1) December, 2014 – June, 2015: +108%; and 2) July, 2012 – January, 2014: +285%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 95.3% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through July, 2019 of 95.3% is upper quartile relative to Repligen Corp Peer Group.

Current 5-year total return performance of 35.1% is upper quartile relative to the S&P 500 Composite.
Through July, 2019, with upper quartile current 5-year total return of 35.1% relative to S&P 500 Composite, Repligen’s total return performance is upper quartile relative to Repligen Corp Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, RGEN’s overall valuation is quite high. Four of five factors are lower quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/revenue, then by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/assets. The lowest factor, price/equity ratio, is above median.
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Repligen has a major value gap compared to the median valuation. For RGEN to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 17.45X to 4.51X. If RGEN’s ratio of enterprise value/revenue were to fall to 4.51X, its stock price would be lower by $-58 to $22.
For RGEN to fall to lower quartile valuation relative to the Repligen Corp Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 17.45X to 2.60X. If RGEN’s ratio of enterprise value/revenue were to fall to 2.60X, its stock price would decline by $-67 from the current level of $81.

VALUE TARGETS

RGEN’s future returns on capital are forecasted to be in line with the cost of capital. Accordingly, the company is expected to be Value Creation neutral.
Repligen’s current Price Target of $13 represents a -83% change from the current price of $80.57.
Repligen’s very low appreciation potential results in an appreciation score of 3 (97% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 3, the high Power Rating of 94 results in an Value Trend Rating of C.
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Repligen’s current Price Target is $13 (+14% from the 2018 Target of $12 but -83% from the 09/10/19 price of $80.57). This slight rise in the Target is the result of a +14% increase in the equity base and a +0% change in the price/equity multiple. None of the Value Drivers has an impact on the price/equity multiple. The forecasted decline in growth has no impact on the multiple. The forecasted decline in cost of equity also has no impact and the increase in return on equity didn’t either.
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PTR’s return on equity forecast is 7.1% — slightly above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2010 and 2018. The current forecast is significantly below the 2012 peak of 18%.

PTR’s growth forecast is 23.0% — slightly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2010 and 2018. The current forecast is significantly above the 2012 low of 9%.

PTR’s cost of equity forecast is 7.8% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2010 and 2018. The current forecast is above the 2011 low of 5.0%.
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At Repligen’s current price of $80.57, investors are placing a positive value of $135 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 25.0% per year, and a return on equity of 5.7% versus a cost of equity of 8.2%.
PTR’s 2020 Price Target of $13 is based on these forecasts and reflects an estimated value of existing assets of $115 and a value of future investments of $-101.

About John Lafferty 54938 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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