Celgene: Solid Balance Sheet and Promising Pipeline

I have been looking for a solid pharmaceutical company to add to my stock portfolio. I had owned Pfizer (PFE) previously but Pfizer appears to be a drug company with a dearth of drugs in its pipeline.

The days of growth appear over and I am looking for a drug company with a brighter future. One of the stocks that has piqued my interest is Celgene (CELG). Celgene is a biotechnology company that discovers and produces therapies to treat cancer and other diseases. Celgene has a solid balance sheet and a promising pipeline of cancer drugs such as Vidaza, Revlimid and Thalomid.

Celgene has no debt and the company has over $5 per share in cash alone. The company has double digit profit margins and operating margins. Year over year growth has been over 30%.

My primary concerns are the astronomical P/E ratio and weakness in Q1 sales. Celgene currently has a P/E of 74. Analysts believe that the poor economy is to blame for lower Q1 sales and expect an increase due to a strengthening economy in Q3 and Q4. Celgene is still a little too expensive for me at its current price of $44. I don’t like a P/E ratio that is more then 2x the growth rate.

If the stock were to weaken to the mid 30’s; I would see that as a great opportunity to up shares.

Comments

[PerformDD:]

Mark Riddix has inaccurately reflected Celgene P/E ratio.

Non-GAAP EPS of the trailing four quarters is $1.64:

1Q2009 $0.44
4Q2008 $0.43
3Q2008 $0.40
2Q2008 $0.37

That equates to slightly below 27 P/E, which is lower than its growth rate. Further, the company has a five year guidance of 20% CAGR top-line and EPS of 25-30%. 2009 guidance at low end is 2.05, which is 21 P/E.

Please correct this misinformation.

Jun 09 10:00 AM

[DmytrenkoArtem:]

heh.. articles like this.. looks like robot's writes :-)

Jun 09 05:11 PM

[Alphameister:]

At least no trees were killed in the publishing of this "contribution" to SA.

Jun 10 08:53 AM

[relayer75:]

Right company, wrong analysis. As PerformDD has shown, the so-called "astronomical" p/e ratio of CELG is actually very low compared to its peers. Actually, I don't think CELG has any true peers, except possibly Gilead (GILD). Personally, I believe CELG will be acquired by PFE, Novartis or another mega-cap drug company within a year, at a significant premium, particularly if CELG stays down here at the $40 level or lower.

Jun 12 10:49 AM

[acs:]

Analysis totally wrong.. His earnings estimates are way off base, and with their robust growth coming in the next several quarters, you can't use the rear view mirror to look at the PE. Rather, he should look at the PEG which compares growth rate to price. At an absurdly cheap PEG of .5, one would get a different viewpoint of the valuation..

Jun 20 10:15 AM

[Furd Turgeson:]

This is about the worst analysis and conclusion I have ever witnessed. Celgene is a screaming buy at anything under 50.

Jun 30 07:35 PM