BUSINESS
Ionis Pharmaceuticals, Inc. discovers and develops RNA-targeted therapeutics in the United States. The company offers SPINRAZA for spinal muscular atrophy (SMA) in pediatric and adult patients; TEGSEDI, an injection for the treatment of polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults; and WAYLIVRA, a treatment for familial chylomicronemia syndrome and familial partial lipodystrophy.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to exceed the cost of capital, IONS is expected to be a modest Value Builder.
Ionis Pharmaceuticals has a current Value Trend Rating of D (Negative).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Ionis Pharmaceuticals has a very low Appreciation Score of 3 but a good Power Rating of 83, with the Negative Value Trend Rating the result.
Ionis Pharmaceuticals’ stock is selling significantly above targeted value. The current stock price of $43.53 compares to targeted value 12 months forward of $6.
Ionis Pharmaceuticals’ very low appreciation potential results in an appreciation score of 3 (97% of the universe has greater appreciation potential.)
Ionis Pharmaceuticals has a Power Rating of 83. (This good Power Rating indicates that IONS has a better chance of achieving attractive investment performance over the near to intermediate term than all but 17% of companies in the universe.)
Factors contributing to this good Power Rating include: recent price action has been extremely favorable; and earnings estimate behavior for IONS has been slightly favorable recently. An offsetting factor is the Pharmaceutical Preparations comparison group is currently in an unfavorable position.
INVESTMENT PROFILE
IONS’ financial strength is high. Financial strength rating is 77.
Relative to the S&P 500 Composite, Ionis Pharmaceuticals Inc has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that IONS is normal risk. Relative weaknesses include: low historical profitability, high financial leverage, low expected growth, and high earnings variability. IONS’ valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. IONS has unusually low market capitalization.
CURRENT SIGNALS
Ionis Pharmaceuticals’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Ionis Pharmaceuticals’ current technical position is mixed. The stock price is in a 1.2 month down move. The stock has declined 14.5% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average. The stock has just fallen below its 200 day moving average.
ALERTS
Recent meaningful negative changes in investment behavior have impacted Ionis Pharmaceuticals Inc (NASDAQ: IONS): the stock’s recent price decline challenged its longer term uptrend.
In light of this new information we are reviewing our current Overall Rating of D. This review will be completed in the next several days.
For its fourth fiscal quarter (ending December 31), Ionis Pharmaceuticals Inc (NASDAQ: IONS) has reported E.P.S. of $-0.06 compared to $-0.37 a year ago. E.P.S. were $-2.56 for the latest four quarters through December 31 versus $-1.90 for the same period a year ago.
Ionis Pharmaceuticals Inc (NASDAQ: IONS) stock declined modestly by -1.8% on 2/21/24. The stock closed at $43.53. Moreover, trading volume in this decline was unusually high at 167% of normal. The stock has been exceptionally strong relative to the market over the last nine months but has declined -13.6% during the last week.
CASH FLOW
In 2022, Ionis Pharmaceuticals experienced a slight decrease in cash of -$135.77 million (-6%). Sources of cash were slightly lower than uses. Cash consumed from 2022 EBITDA totaled -$395.86 million. Non-operating sources contributed +$160.33 million (-41% of EBITDA). Cash taxes consumed -$11.74 million (+3% of EBITDA). Re-investment in the business amounted to -$69.22 million (+17% of EBITDA). On a net basis, debt investors contributed +$109.85 million (-28% of EBITDA) while equity investors contributed +$70.87 million (-18% of EBITDA).
IONS’ Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Ionis Pharmaceuticals Peer Group. In most years, Ionis Pharmaceuticals was in the top quartile and lower quartile. Currently, Ionis Pharmaceuticals is lower quartile at -41% of EBITDA (+$160.33 million).
IONS’ Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Ionis Pharmaceuticals Peer Group. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, Ionis Pharmaceuticals was in the top quartile and lower quartile. Currently, Ionis Pharmaceuticals is upper quartile at +3% of EBITDA (-$11.74 million).
IONS’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Ionis Pharmaceuticals Peer Group. In most years, Ionis Pharmaceuticals was in the top quartile and lower quartile. Currently, Ionis Pharmaceuticals is at median at +17% of EBITDA (-$69.22 million).
IONS’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Ionis Pharmaceuticals Peer Group. In most years, Ionis Pharmaceuticals was in the top quartile and third quartile. Currently, Ionis Pharmaceuticals is substantially below median at -28% of EBITDA (+$109.85 million).
IONS’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Ionis Pharmaceuticals Peer Group. In most years, Ionis Pharmaceuticals was in the top quartile and lower quartile. Currently, Ionis Pharmaceuticals is substantially below median at -18% of EBITDA (+$70.87 million).
IONS’ Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Ionis Pharmaceuticals Peer Group. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Ionis Pharmaceuticals was in the top quartile and lower quartile. Currently, Ionis Pharmaceuticals is at median at +34% of EBITDA (-$135.77 million).
IONS’ Cash, %Revenue has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Ionis Pharmaceuticals Peer Group. (Since 2019 Cash, %Revenue has experienced a very sharp recovery.) In most years, Ionis Pharmaceuticals was in the top quartile. Currently, Ionis Pharmaceuticals is upper quartile at +340%.
PROFITABILITY
IONS’ return on equity has eroded very significantly since 2018. The current level is -129.% versus the high of 26.1% and the low of -129.%.
The productivity of IONS’ assets rose over the full period 2013-2023: asset turnover has exhibited a volatile overall uptrend but it experienced a very sharp decline after the 2019 high.
IONS’ return on equity is lower quartile (-129.%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is substantially below median (-12.8%) reflecting asset turnover that is lower quartile (0.21X) and lower quartile pretax margin (-61.1%).
Tax “keep” rate (income tax management) is at the upper quartile (109.0%) resulting in after tax return on assets that is substantially below median.
Financial leverage (leverage) is upper quartile (9.30X).
GROWTH RATES
Overall, Ionis Pharmaceuticals’ growth rate has slowed considerably in recent years.
Ionis Pharmaceuticals’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 13.6% per year.
Total asset growth has been 12.9% per year.
Annual E.P.S. growth has been 414.8% per year.
Equity growth has been 9.0% per year. (More recently it has been -29.5%.)
No consensus growth rate forecast is available for Ionis Pharmaceuticals.
Relative to the Ionis Pharmaceuticals Peer Group, Ionis Pharmaceuticals’ historical growth measures are generally third quartile. E.P.S. growth (414.8%) has been at the upper quartile. Revenue growth (13.6%) has been below median. Equity growth (9.0%) has been at the lower quartile. Total asset growth (12.9%) has been at the lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Ionis Pharmaceuticals’ stock price performance has been volatile and below market. Between April, 2013 and February, 2024, Ionis Pharmaceuticals’ stock price rose +94%; relative to the market, this was a -38% loss. Significant price moves during the period: 1) January, 2021 – November, 2021: -56%; 2) December, 2015 – May, 2016: -63%; and 3) April, 2014 – February, 2015: +158%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 28.9% 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 January, 2024 of 28.9% is above median relative to Ionis Pharmaceuticals Inc Peer Group.
Current 5-year total return performance of -2.4% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -2.4% relative to S&P 500 Composite, Ionis Pharmaceuticals’ total return performance is slightly above median relative to Ionis Pharmaceuticals Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, IONS’ overall valuation is quite high. Price/equity ratio is upper quartile. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is near the upper quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to Ionis Pharmaceuticals Peer Group, IONS’ overall valuation is high. Price/equity ratio is at the upper quartile. Ratio of enterprise value/revenue is at the upper quartile. Ratio of enterprise value/assets is at median. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Ionis Pharmaceuticals has a major value gap compared to the median valuation. For IONS to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 13.35X to 7.13X. If IONS’ ratio of enterprise value/revenue were to fall to 7.13X, its stock price would be lower by $-27 to $17.
For IONS to fall to lower quartile valuation relative to the Ionis Pharmaceuticals Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 13.35X to 4.92X. If IONS’ ratio of enterprise value/revenue were to fall to 4.92X, its stock price would decline by $-36 from the current level of $44.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to exceed the cost of capital, IONS is expected to be a modest Value Builder.
Ionis Pharmaceuticals’ current Price Target of $6 represents a -87% change from the current price of $43.53.
Ionis Pharmaceuticals’ 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 83 results in an Value Trend Rating of D.
Ionis Pharmaceuticals’ current Price Target is $6 (-17% from the 2022 Target of $7 and -87% from the 02/21/24 price of $43.53). This slight fall in the Target is the result of a -25% decrease in the equity base and a +10% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple. The forecasted flat return on equity has no impact. The forecasted decline in growth has a very large negative impact.
PTR’s return on equity forecast is 4.0% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly below the 2020 peak of 18%.
PTR’s growth forecast is 0.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly below the 2020 peak of 35%.
PTR’s cost of equity forecast is 2.2% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well below the 2020 peak of 10.4%.
At Ionis Pharmaceuticals’ current price of $43.53, investors are placing a positive value of $21 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 12.0% per year, and a return on equity of 4.0% versus a cost of equity of 3.3%.
PTR’s 2024 Price Target of $6 is based on these forecasts and reflects an estimated value of existing assets of $35 and a value of future investments of $-29.
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