The past 14 months have disappointed many shareholders of Repligen Corp. (RGEN, Financial). Its price fell from $324.21 on Sept. 23, 2021 to $210.84 at the close of trading on Nov. 16, 2022. That’s a 35.00% haircut.
The price declined enough for the GF Value chart to warn that it might be a value trap, a company so down on its luck that the share price might never recover. But that’s at odds with what the fundamentals tell us. So, is this a value trap or a value opportunity?
About Repligen
Founded in 1981 and based in Waltham, Massachusetts, Repligen is an $11.71 billion market cap company that operates in the bioprocessing market. In its own words, from the 10-K for 2021, it focuses on the “development, production and commercialization of highly differentiated, technology-leading systems and solutions that address specific pressure points in the biologics manufacturing process and deliver substantial value to our customers. Our products are designed to optimize our customers’ workflow to maximize productivity and we are committed to supporting our customers with strong customer service and applications expertise.”
According to its November 2022 investor presentation, it has a lot of room to grow in an expanding addressable market:
In the annual report, it pointed to what it called a “highly diversified portfolio of products” composed of four main franchises: filtration, chromatography, process analytics and proteins. It goes on to explain that the majority of its revenue comes from consumables or single-use products. Its consumable bioprocessing products enable more streamlined workflow, greater cost savings and lower risk of contamination compared to reusable equipment.
Competition
The company has expressed concern that its own customers, including Cytiva, a subsidiary of Danaher Corporation (DHR, Financial), and MilliporeSigma, a subsidiary of Merck & Company (MRK, Financial), will begin developing their own versions of its products.
Repligen has several competitive advantages according to its annual report:
- Innovation experience and expertise - It owns or has exclusive rights to 203 issued patents and another 289 pending in multiple countries.
- Platforming of its products, which refers to the delivery of enabling technologies that become the standard or “platform” technologies.
- Targeted acquisitions - It has been an active acquisitor, buying companies that improve its competitiveness in filtration, chromatography or process analytics.
- Geographical expansion.
- Operational efficiency - The company invests in capacity growth and process optimization. This strategy has delivered industry-leading operating and net margins, as well as above-average returns on equity and invested capital.
The below chart shows the stock favorably compares to Telefex Inc. (TFX, Financial) and NovoCure Ltd (NVCR, Financial) on the performance front:
Fundamentals summary
Next, let's take a look at Repligen's fundamentals. Repligen is one of the highest-scoring companies in terms of its GF Score of 98 out of 100, based on its high profitability rank, GF Value rank, momentum rank, financial strength and growth rank.
Financial strength
Repligen receives a solid 8 out of 10 ranking for financial strength from GuruFocus, boosted by the interest coverage ratio of 39 and an Altman Z-Score of 11.2.
What’s interesting here is that the debt situation is even better than it seems. The company has $284.2 million in short-term debt and zero long-term debt. And, it needn’t be concerned about paying the interest on the short-term debt because it has $573.4 million in cash and cash equivalents.
Turning to the debt-to-revenue ratio, the company had trailing twelve month revenue of $801.3 million and $284.2 million. Dividing the latter by the former, we get a low ratio of 0.35.
As this chart shows, it has a far higher Altman Z-Score than its peers and competitors:
Profitability
We get a full 10 out of 10 for Repligen’s profitability score, based on its strong operating margin, Piotroski F-Score, the trend of the operating margin over the past five years, the consistency of its profitability and its business predictability score:
The operating margin trend is encouraging, as the following chart shows:
The consistency of profitability becomes apparent in the below chart showing net income, which has an average growth rate of 51.23% per year over the past five years:
Repligen has a very good business predictability ranking at four and a half out of five stars. The company has been profitable every year for the past decade.
Growth
GuruFocus gives Repligen another 10 out of 10 score for the growth of its business. Particularly, revenue and Ebitda have grown strongly over the past three and five years:
The outstanding growth record also takes in free cash flow:
Few companies can boast of a growth rate like that of Repligen.
Valuation
The GF Value rank of 8 out of 10 is based on the historical performance of companies with similar GF Value charts.
At the close of trading on Nov. 16, 2022, Repligen’s share price was $210.84, while its GF Value was projected at $321.06. That makes it significantly undervalued.
The PEG ratio and the discounted cash flow calculator arrive at fair valuation estimates. For the discounted cash flow estimate, I predict the company will continue its historical five-year earnings growth rate for the next five years as well, which would make it undervalued as well.
Gurus
Frank Sands (Trades, Portfolio) of Sands Capital Management is the biggest of eight guru holders of the stock. At the end of September, he owned 1,638,959 shares, good for a 2.95% stake in Repligen and 1.15% of his firm's 13F equity portfolio.
That put him well ahead of Steven Cohen (Trades, Portfolio) of Point72 Asset Management and Chuck Royce (Trades, Portfolio) of Royce Investment Partners with 307,104 and 100,094 shares respectively.
Other institutional investors have a lot of confidence in Repligen, as they own 97,66% of the company, while insiders own another 4.48%. That’s more than 100%, which can be explained through double-counting somewhere, short-selling, or administrative issues.
Among the insiders, Roy T. Eddleman has the largest holding, with 357,518 shares as of August 2018.
Conclusion
Is Repligen a value trap or a value opportunity? My bet is on value opportunity. It has more cash than short-term debt and no long-term debt at all. It also has generated immense amounts of earnings and free cash flow in recent years. All of that free cash flow can be dedicated to growth, since it does not pay a dividend or repurchase many shares.
