Does Celgene Still Have Upside Potential?

With shares of Celgene Corporation (NASDAQ:CELG) trading at around $117.80, is CELG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Will Revlimid be approved for mantle cell lymphoma (MCL)? We won’t know the answer to that question until June. In the meantime, let’s take a look at some positives and negatives for Celgene.

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Positives:

  • Analysts love the stock: 24 Buy, 6 Hold, 0 Sell
  • Always on the lookout for strategic acquisitions (good track record)
  • Strong international growth potential for Revlimid
  • Deep and diversified pipeline
  • Revenue has consistently increased on an annual basis
  • Earnings have consistently increased on an annual basis
  • Solid margins
  • Strong historical stock performance
  • Increased demand for Vidaza
  • Abraxan sales increased 18 percent year-over-year
  • Strong guidance (FY2013 EPS adjusted upward by 14 percent)

Negatives:

  • Competition for Vidaza
  • Sales of Thalomid declined by 26 percent year-over-year
  • R&D expenses increased 4.8 percent year-over-year
  • SG&A expenses increased 11.4 percent year-over-year
  • Didn’t hold up as well as peers in 2008/2009
  • No dividend yield

The chart below compares fundamentals for Celgene, Amgen Inc. (NASDAQ:AMGN), and Gilead Sciences (NASDAQ:GILD). Celgene has a market cap of $49.00 billion, Amgen has a market cap of $78.71 billion, and Gilead has a market cap of $76.91 billion.

CELG

AMGN

GILD

Trailing   P/E

35.62

17.77

30.80

Forward   P/E

17.07

12.68

17.60

Profit   Margin

25.26%

26.33%

26.71%

ROE

N/A

23.95%

31.35%

Operating   Cash Flow

N/A

 N/A

  $3.19   Billion

Dividend   Yield

N/A

1.80%

N/A

Short   Position

1.30%

1.40%

4.50%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Celgene is weaker than the industry average of 0.40, but it’s stronger than the debt-to-equity ratios for its peers below. Debt isn’t a concern for Celgene at the moment.

Debt-To-Equity

Cash

Long-Term Debt

CELG

0.54

$3.90 Billion

$3.09 Billion

AMGN

1.23

$21.27 Billion

$23.89 Billion

GILD

0.86

$1.86 Million

$8.22 Billion

 

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T = Technicals Are Strong   

Celgene has outperformed Amgen and Gilead year-to-date.

1 Month

Year-To-Date

1 Year

3 Year

CELG

0.51%

48.46%

59.75%

87.93%

AMGN

1.97%

21.92%

49.48%

88.86%

GILD

2.51%

36.61%

92.89%

152.70%

 

At $117.80, Celgene is trading above all its averages.

50-Day   SMA

113.71

100-Day   SMA

102.22

200-Day   SMA

88.02

 

E = Earnings Have Been Strong               

Earnings and revenue have consistently improved on an annual basis.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

2.26

2.69

3.63

4.84

5.51

Diluted   EPS ($)

-3.46

1.66

1.88

2.85

3.30

 

When we look at the previous quarter on a year-over-year basis, we see an increase in revenue and a slight decline in earnings. However, revenue and earnings both improved on a sequential basis.

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   billions

1.27

1.37

1.42

1.45

1.47

Diluted   EPS ($)

0.90

0.82

0.97

0.61

0.89

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

Unfortunately, diseases are on the rise. Is it our diets? Our lifestyles? Our genetics? Nobody knows the exact percentages in regards to causes. Whatever the case may be, diseases like cancer, heart disease, and diabetes don’t seem to be going away any time soon. There is no good news to report here as health is more important than money. For those looking for any silver lining whatsoever, biotech stocks like Celgene stand to benefit.

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Conclusion

Celgene has new drugs that should boost revenue. The pipeline potential is strong, profits have been growing, and guidance is good. If the market takes a hit, then Celgene will take a hit with it, but it should hold up better than most stocks throughout the broader market. If the market holds up or continues its relentless ascent, then Celgene should see future gains.

Celgene is a long-term OUTPERFORM.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

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