Is Jazz Pharmaceuticals (JAZZ) Pricing Reflect A 27.4% One Year Return And DCF Upside?

• This article explores whether Jazz Pharmaceuticals, trading at around US$165.63, may be offering good value right now by examining what the current price could be implying about the company.
• The stock has barely moved over the last week with a 0.7% decline, but over one year it has returned 27.4%. This contrast may influence how investors think about both its potential and its risks.
• Recent coverage around Jazz Pharmaceuticals has focused on how investors are reassessing specialist pharmaceutical companies, with attention on how product pipelines and balance sheet strength factor into long-term expectations. This context helps explain why the share price can be relatively muted over a week or month yet still show a 27.4% return across a full year.
• On Simply Wall St's valuation checklist, Jazz Pharmaceuticals scores 5 out of 6. This sets up a detailed look at how different valuation methods compare and hints at an even more nuanced way to think about value that we will come back to at the end of the article.

Jazz Pharmaceuticals delivered 27.4% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: Jazz Pharmaceuticals Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes the cash Jazz Pharmaceuticals is expected to generate in the future and discounts those cash flows back into today’s dollars to estimate what the business might be worth now.

For Jazz Pharmaceuticals, the latest twelve month Free Cash Flow is about $1.18b. Analysts provide explicit forecasts for several years, and Simply Wall St then extends those projections further using its own assumptions. By 2030, projected Free Cash Flow is $2.13b, with interim annual forecasts between 2026 and 2035 ranging from $1.42b to $2.72b in undiscounted terms.

Using a 2 Stage Free Cash Flow to Equity model based on these projections, Simply Wall St arrives at an estimated intrinsic value of about $797.37 per share. Compared with a current share price of roughly $165.63, this implies a 79.2% discount, indicating that the shares are trading well below that DCF estimate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Jazz Pharmaceuticals is undervalued by 79.2%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Jazz Pharmaceuticals.

Approach 2: Jazz Pharmaceuticals Price vs Sales

For companies where earnings can be uneven, the P/S ratio is often a useful cross check because it focuses on revenue rather than profit, which can be affected by one off items or accounting choices. Investors usually look for a P/S level that aligns with their views on a company’s growth prospects and risk, with higher expected growth and lower perceived risk often justifying a higher multiple.

Jazz Pharmaceuticals currently trades on a P/S of 2.42x, compared with the Pharmaceuticals industry average of 4.35x and a peer group average of 2.30x. Simply Wall St also calculates a proprietary “Fair Ratio” of 7.21x, which is the P/S it would expect for Jazz Pharmaceuticals after factoring in elements such as earnings growth, profit margin profile, industry, market cap and specific risks.

This Fair Ratio can be more informative than a simple comparison with peers or the broad industry, because it attempts to tailor the benchmark to the company’s own characteristics instead of assuming that all companies deserve the same multiple. Since the Fair Ratio of 7.21x is higher than the current 2.42x P/S, this framework indicates that the shares are trading below that preferred multiple level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Jazz Pharmaceuticals Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply the stories investors tell about a company like Jazz Pharmaceuticals, linking their view of its products, risks and opportunities to a set of forecast numbers and a Fair Value that can be compared with the current share price to help decide whether to buy, hold, or sell. All of this is presented within an easy to use tool on Simply Wall St’s Community page that updates automatically when new information such as earnings or trial news arrives. For example, a cautious Jazz Narrative might lean toward the lower US$147 price target with revenue growing 4.3% a year and earnings of US$645.1m by 2028 on a 17.1x P/E. In contrast, a more optimistic Narrative might anchor on the higher US$230 price target with revenue growing 11.4% a year, earnings of US$1.3b and a 13.5x P/E. Your job is to decide which story feels more realistic given your own expectations.

Do you think there's more to the story for Jazz Pharmaceuticals? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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