What is VRTX's Intrinsic value?

Vertex Pharmaceuticals Inc (VRTX) Intrinsic Value Analysis

Executive Summary

As of June 4, 2025, Vertex Pharmaceuticals Inc's estimated intrinsic value ranges from $42.44 to $189.52 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $42.44 -90.5%
Earnings Power Value $189.52 -57.6%

Is Vertex Pharmaceuticals Inc (VRTX) undervalued or overvalued?

With the current market price at $446.48, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Vertex Pharmaceuticals Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  2. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.65 0.75
Cost of equity 6.9% 9.1%
Cost of debt 4.5% 8.8%
Tax rate 16.1% 19.0%
Debt/Equity ratio 0 0
After-tax WACC 6.8% 9.1%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.0%
  • Long-term growth rate: 4.0%
  • Fair value: $42.44 (-90.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.1% (Low) to 6.9% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $(44) to $(187)
  • Selected fair value: $-115.83 (-125.9% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $3,443M
Discount Rate (WACC) 9.1% - 6.8%
Enterprise Value $37,932M - $50,278M
Net Debt $(4,563)M
Equity Value $42,495M - $54,841M
Outstanding Shares 257M
Fair Value $165 - $214
Selected Fair Value $189.52

Key Financial Metrics

Metric Value
Market Capitalization $114656M
Enterprise Value $110093M
Trailing P/E 0.00
Forward P/E 414.58
Trailing EV/EBITDA 12.75
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.00

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 67% $8.49
Earnings Power Value 33% $18.95
Weighted Average 100% $91.47

Investment Conclusion

Based on our comprehensive valuation analysis, Vertex Pharmaceuticals Inc's weighted average intrinsic value is $91.47, which is approximately 79.5% below the current market price of $446.48.

Key investment considerations:

  • Strong projected earnings growth (-5% to 5% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.00)

Given these factors, we believe Vertex Pharmaceuticals Inc is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.