Stephens Calls Ligand 'Unique,' Sees $150/Share Coming By 2017

Ligand Pharmaceuticals Inc. LGND is a unique biotech play that offers long-term staged growth profile, according to a note from Stephens, which initiated coverage of the stock with an Overweight (Volatile) rating.

The brokerage has $150 price target on the stock, representing an upside of 27 percent from Tuesday's closing price of $117.81.

"We feel that LGND offers investors a unique and diversified way to gain exposure to a broad biotech portfolio with its 140+ partnered projects using over five different technology platforms/products," analyst Drew Jones wrote in a note to clients.

'Well Positioned For Robust Earnings Growth'

Jones continued, "We believe that LGND is especially well positioned for robust earnings growth over the next 2+ years, as incremental royalty revenue from Promacta and Kyprolis and expected approvals provide incremental high- margin revenue."

The analyst noted that the company has various revenue streams with over 140 "shots on goal" (partnered programs that have been disclosed) and this diversification shields Ligand from the volatility of biotech assets.

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Jones expects a potential royalty opportunity of over $200 million for Promacta and Kyprolis over the next few years. The analyst said the assets generated royalty revenue of $38.2 million in 2015.

"Even without accounting for incremental royalties outside of Promacta and Kyprolis, we expect to see strong revenue growth and operating leverage, especially if/when these two drugs are able to expand current indications," the analyst noted.

"We expect the Company's 'Big 6' and 'Next 12' Programs to begin contributing to growth as these products move into commercialization. Our estimate is that these programs could offer $750 million in potential royalties annually on a risk-adjusted basis for current stages of approval," Jones highlighted.

Looking Forward

"When taking what we see as a conservative view of the Company's growth prospects from Promacta/Kyprolis royalties, Captisol Product Revenue and Collaborative R&D Revenue, we believe that Adj. EPS for LGND could be above $14 per share in five years," Jones added.

The analyst expects adjusted earnings of $3.37 a share for 2016 and $4.95 for 2017. Wall Street analysts, on average, expect earnings of $3.35 a share for 2016 and $5.09 a share for the next year.

Further, Jones said that Ligand would see strong free cash flow going forward and "are projecting $3.73 per share in 2016 and $5.13 per share in 2017."

The analyst also hailed the company's shrewd capital deployment strategy and "estimate that at current levels with the repurchase authorization available, LGND would be able to repurchase 5 percent to 7 percent of its common shares outstanding."

According to TipRanks, Drew Jones has a success rate of 58 percent with an average return per recommendation of +7.8 percent. The analyst is ranked 1,153 out of 3,863 analysts.

Shares of Ligand have been trading between $71.63 and $118.54 during the past 52 weeks and have gained about 9 percent this year.