I bought a LOT of Regeneron Pharmaceuticals stock (REGN)

hi youtube and welcome back to another update today we're going to be talking about regeneron pharmaceuticals this is the biggest position of my portfolio it's bigger than my position in dropbox and a number of other high conviction plays that i have last week i was in a situation where as you guys know i closed out my position in smurf at kappa and that was the video i posted that day i was going to reallocate that capital into some of my portfolio positions however when i looked at financials they look like they've ran a little bit too much a lot of them are up already 50 60 with no correction energy looks like there's probably going to be a little bit more of a correction on the downside we'll see i'm not sure when i look at dropbox i still think that we're in a b wave before we get a c back down towards 20 and every company that i looked at i just didn't see the opportunity there so i went back to my default list and i started searching through different companies and i found regeneron but i didn't find it now i've been looking at it for a while this is a really interesting company when we're looking at molecular biology and biotech companies i always look for large cap companies and the reason being is i want diversified products uh with a strong pipeline of growth strong balance sheets strong cash flows etc for the simple fact that i don't understand molecular biology i don't understand that to a really good degree now the great thing is what i found out is within the investors hub we've got a bunch of people from different backgrounds and we have a biomedical scientist who i have a pending call with and i'm excited to have a chat with this guy and talk about ever all things biotech and pharmaceuticals because i think moving forward this is going to be an industry that's going to provide fantastic results and hopefully if i can pick this guy's brain and share a little bit of insights regarding value in these businesses we can both benefit and i can share better content so anyway let's talk about regeneron pharmaceuticals let's head on over to the computer screen and let's get straight into it so i'm not wasting too much of your day regeneron pharmaceuticals is a fully integrated biotechnology company that discovers invents develops manufactures and commercializes medicines for the treatment of serious diseases these guys have long-term catalysts and near-term catalysts the long-term catalyst is they've got five phase three trial products that already have fda approval and then the near-term catalyst is their antibody cocktail 4cv19 and the reason why i say that's a near-term catalyst is because although we've already known about it now for a while some of the unit economics of this are really impressive so we come down here they've got regen cov2 and this is the product that's going to be fighting uh cv19 i really like the ceo of this company i'll tell you why i'm really impressed with the ceo i'm not a molecular biologist i don't fully understand any of this stuff but he was able to explain to me this product in a two-minute video essentially what happens is more specifically with elderly people they get cv19 and the virus actually moves at a faster pace around the body than the immune system can protect it and what this product does is it's sort of like steroids for your immune system it pumps up your immune system so it can get ahead of the virus and start to to break it down that way and that's essentially what this is it's extremely effective according to the random trials that they've done so far the unit economics of this is really impressive right so the us government have already committed to purchasing 300 000 doses which is about 450 million dollars that's a unit cost of one thousand five hundred dollars however the guide price of a dose of this is fifteen hundred dollars to six thousand dollars so this could go all the way up to six thousand dollars now for the patient medical insurers from what i'm reading will actually cover the bill so it's okay for the patient and for regeneron it's okay for them because ultimately they're going to get um consistent cash flow from this because the insurance companies will be paying out which i always like to see now this is where it gets interesting because the ceo had said in an interview back in november on excuse me october 5th that once they start ramp up they could produce about 50 to 100 000 doses per month and when you work back at fifteen hundred dollars if that's the base value for that you have fifteen hundred times let's say they can only do fifty thousand per month at 75 million dollars per month that they're generating from this one product times that by 12 you've got almost a billion dollars in revenue from this one product which is kind of an opportunistic product from my understanding of cv 19 this is a virus that's very easy to understand modernist ceo came out and said that the architecture for their vaccine took two days and it was a very simple vaccine to understand or excuse me a very simple virus to understand and now you've got regeneron that are giving immunity to the patient okay they're saying that it'll only take a couple of months and the vaccine might actually take a couple of years might actually protect you for a couple of years but it still gives you immunity and they were able to develop this in a short period of time so i think that this is a massive one-up for science for sure and the more i'm i'm reading about it this product seems really interesting so that is the near-term catalyst for generon and as i mentioned a moment ago they have five stage three uh trials that already have fda approval they're the long-term catalysts so moving forward this has a fantastic pipeline of products well diversified revenue and when you break it down this is really interesting because actually let's look at the chart structure first this is the weekly chart you can see back in 2015 prices were the market cap was in and around 55 to 60 billion dollars back in 2015. today we're actually down around 50 billion so the market cap's lower than where it was in 2015 now when you look at revenue over that period it's gone from four billion dollars and the guidance for 2021 is 10 billion dollars up 150 percent over that period yet the market cap is below where it was five years ago which is uh incredible when you think about it look at their revenue growth year on year on year fantastic revenue growth i know a lot of you guys are electric vehicle investors and and most of you guys are tesla investors this is very similar to tesla from 2016 into 2019 where you've seen quarterly deliveries go for monthly or quarterly deliveries go from 40 000 all the way up to 80 000 yet the share price done nothing and what happened after that improving fundamentals and then the share price catches up so i kind of see a little bit of similarities i don't think you're going to get a 10x in in regeneron in one year but i definitely think there's going to be fantastic returns so we're seeing that revenue actually grew 150 over that period of time what's really interesting as well is if you actually have a look at ebitda when we take revenue off ebay has actually grown at a faster pace in 2015 ebitda was at 1.3 billion dollars and at the end of 2021 we're expecting it to be closer to 5 billion so we just pull up a calculator and just do um [Music] fight let's just do 5 billion just for argument's sake just to get a it's about yeah it's about 280 280 percent on the upside since 2015 yet the price is actually below where it was in 2015 so fundamentals are improving this is also a company that's never been cheaper so ev to ebitda has only ever been cheaper in back in in september october 2019 so it's never really been cheaper than where it currently is yet the fundamentals continue to improve and as you guys can see here into next year you actually see actually we're expecting a 20 top line growth in revenue and a 20 bottom line growth in earnings this is a fantastic opportunity where the fundamentals continue to improve near-term catalyst is the ramp up of cv19 antibody cocktail and when you consider the potential revenue that can generate potentially a billion dollars on top of their normal operations it's fantastic and then you have those longer term catalysts with three or five products in phase three trials with fda approval i think it's fantastic so what i done was ident on a discount free cash flow model why because they've got consistent revenue year on year but not just consistent revenue they've got consistently growing even a year on year and that's what i wanted to input into the data here because it's very much consistent now i'm really surprised that the numbers here and i think you guys will be too so i want to explain all of the different variables here first let me zoom in because i know you guys are on your phone as you guys can see here the first thing that's going to jump out at you is the discount rate at 3.32 percent i always use the weighted average cost of capital always i think it's the fairest metric to use for a discount rate sometimes you're going to see that that's going to be 15 for a specific company and in other cases you're gonna see it maybe down around five or six i've never seen it down as low as 3.32 percent now this is why it's down around 3.3 first and foremost their effective tax rate is 9.2 percent which is extremely low and when we pop on over here what you guys will find is that their five-year beta is 30 it's extremely low so it's a really low beat of stock it's got a low effective tax rate and when we factor in the cost of debt by dividing their interest payment by their debt we get an interest payment of 1.81 and then you factor in the risk-free rate of 1.15 percent we get a weighted average cost of 3.32 that's what it costs them that's what i'm using as a discount rate now we can argue about that for sure but that's essentially what the weighted average cost of capital is for regeneron right now that's a factual number that's not a made up number a lot of people just pop over here and just put in oh i'm gonna use six percent eight percent ten percent because the risks might be a little bit higher the correct way to do it is use the weighted average cost of capital and ultimately that's down around 3.32 so we'll continue with this for right now and then we'll change it and put that at a higher percent and then see what the ultimate outcome is i'm using the perpetual growth rate at 2.5 percent because i think gdp will grow at 2.5 percent moving forward outside of 2020. uh evd but i'm multiple the guidance into 2021 is 11.5 that's below where it currently is um that's possibly fair i think you guys would agree that's down around the lowest it's ever been i think a fair multiple probably closer towards 14 longer term but i've kept it at 11.5 just for right now because you guys will be impressed with these numbers anyway share price before the market opened was 498 and then ultimately for the growth rate in earnings i've gone over here to finvis and you can see the next five years expected growth rate for earnings is 11.14 and i've used that number uh to compound it year on year on year the most important thing to note is that that's not consistent throughout year on year for argument's sake next year we're expecting 20 growth in earnings the year after that it might only be 9 but it equates to on average 11 compounded so that's what i've used so that would mean that ebit will go for from 4.4 billion all the way up to 6.8 billion now that is taking at the end of the fiscal year 2021's number so that's the guidance for end of fiscal year 2021 and working forward thereafter this is where it gets really interesting when we pop over here and have a look at our intrinsic value it would be 472 percent higher than where we currently are as you guys can see there 2851 would be the target that is an incredible return can i see that playing out absolutely over the next four to five years i could definitely see 500 on the upside with an internal rate of return of 63 absolutely near long-term catalyst solid balance sheet improving fundamentals tailwind for the market absolutely now if we're to change this to i don't know six point five percent if i if we're going to change that to 6.5 percent i'm going to change this to the average as well which would be 14x that changes the outcome significantly it's only about 85 then on the upside but that's still incredible that still gives us a fair value and intrinsic value somewhere around 923 the most important takeaway from this is that no matter what way i look at it we're looking at regeneron based on its present value of future cash flows and it's extremely cheap based on those future cash flows extremely cheap it could be anywhere from 2x to 5x on the upside which i'm happy with as you guys can imagine so for right now anywhere from 100 to 500 depending on what you want to label in there for your discount rate if you're using the weighted average cost of capital it's 470 if you're using six and a half percent which is around double the weighted average cost of capital it would be somewhere around 85 percent so let's pop on over here now and let's have a look at the chart structure because the chart structure actually suggests that the low is possibly already in place we'll have a look now so as you guys can see off the low here we start off with our five wave structure we pull back in an a b and a c however note that this is quite shallow and when you get a shallow wave two that essentially means that you're going to get a deeper wave four they alternate right so normally you get a deeper wave two if it's shallow you get a deeper wave four remember that then we rally up here in a wave one two three four ending diagonal for a fifth but that's all of a wave three we know that this is corrective on the downside because it breaks down in three ways then it breaks up in three ways and then it breaks down and one two three four and five now i'm calling the low in place already i'm quite happy building out a pretty decent position below 500 because longer term i think i win i think i win big on this one and one of the main reasons is when you look at the breakdown here it actually looks to me like this could be a wave one two three four and five in some sort of expanding diagonal to complete off a final fifth wave so i'm calling that a final fifth wave of c of wave four the reason why this is deeper is because we had a shallow wave two over here and we should start a five wave structure on the upside back up to a new all-time high above 667 dollars here's the risk in the very near term which does not bother me at all because this is part of a diversified portfolio this could end up being a flat correction if i've misinterpreted this part here and this is actually a three-way structure some sort of three wave structure this here would end up being an a b and c expanding flat you get your final fifth wave and then we start to move on the upside that to me is sort of near-term noise i'm not really too concerned about that whatsoever but in and around here below 500 dollars i think this is filthy cheap across the board relative to its ev historical ev to even a multiple relative to its discount free cash flow model there are a number of catalysts that suggest that this is going to start pushing higher in the near term and the longer term the industry as a whole has a a bunch of tailwinds and from a chart perspective it looks to me like this could be the end of a wave four now the way i'd be looking at this is to be a five wave structure for a wave one so when we complete this off yes we will correct but i think that'll be for a wave two in a much bigger um longer drawn out bull market so i'm a long-term holder of regeneron love the company love the valuation we're paying for it love the opportunity i think the ceo was great really liked listening to him and educating myself on this whole molecular biology industry so it was a very easy decision for me to act quick and build it out to a fairly decent position in my portfolio so anyway guys if you guys are interested i i can't always get the videos out as quick as i would like because it takes me a little bit of time but we do talk about new ideas quite regularly in the investors hub and we're upgrading it and making changes to improve it over time so anyway if you're interested check that out there is a link below so have a wonderful day everyone thank you all very much for your support and if you're interested maybe do a little bit more research into regeneron but it's definitely a company that i'm going to be holding for the long term and i'm very excited about it have a wonderful day everyone all the very best peace

Channel: The Popular Investor

Views: 14,271

Rating: 4.9294438 out of 5

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Id: Fkff-CtDAwQ

Length: 15min 40sec (940 seconds)

Published: Mon Jan 11 2021