Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Summary

  • The stock is fairly valued on next year's earnings projections.
  • The stock looks to have completed a head and shoulders pattern.
  • The company has great earnings growth expectations.

Celgene Corporation (NASDAQ:CELG) is a global biopharmaceutical company engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. On January 30, 2014, the company reported fourth-quarter earnings of $1.51 per share, which missed the consensus analysts' estimates by $0.03. For the past year the company's stock price is up 13.92%, while the S&P 500 (NYSEARCA:SPY) has gained 19.96% in the same time frame. I've already purchased a batch of the stock in early January 2014 for my growth portfolio, and am down a whopping 12.41% on the batch due to a bad market tape for growth stocks. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 42.68, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 15.02 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.35), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 31.51%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 31.51%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 25.15%.

Financials

On a financial basis, the things I look for in general are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 11.5%, 25.8% and 15.4%, respectively, which are not that great of values. In this particular instance, I will forego the dividend aspect of the financials because the stock is in my growth portfolio; and in the growth portfolio, a stock does not have to have a dividend.

Technicals

(click to enlarge)

Here is a chart of Celgene indicating a head and shoulders pattern, a bearish pattern. I am by no means a chartist, but a head and shoulders, as described by Investopedia, has the following characteristics: 1) "price rises to a peak and subsequently declines. 2) Then the price rises above the former peak and again declines. 3) Finally, the price rises again, but not to the second peak, and declines again." The first and third troughs are considered shoulders, and the second peak forms the head.

From my experience of head and shoulders patterns, you figure out where the neckline is and measure half the distance to the top of the head to figure out how much further the stock is going to drop. The stock must break the neckline with "umph", though, meaning on large volume. It looks as if Celgene has done that, broken the neckline with strong volume. So taking $147 as the neckline (shown on the chart) and $170 as the top of the head, half that distance is $158.50. Taking the difference between $158.50 and $170, we get $11.5. So now, I would subtract $11.5 from $147 to get a target of $135.50 for the immediate future. It looks like the stock has hit that $135.50 target, making it seem like the downward movement is over. The neckline should serve as future resistance so that is the next step to watch. If you're a chartist reading this, please chime in on the philosophy I'm using, as this is just from my experiences.

Recent News

  1. Mylan is sueing Celgene after generic versions of Revlimid and Thalomid have been blocked. Mylan would like Celgene to sell them the products at market prices so bioequivalence tests can be performed and wants to be paid for damages for the inability to sell generic versions of the products.
  2. The company has teamed up with Forma Therapeutics once again to use screening techniques offered by Forma to identify new drugs which Celgene can license. For the three and a half year collaboration Celgene will pay $225 million up front.
  3. Otezla is the company's product for plaque psoriasis which has shown the ability to improve symptoms. The oral treatment has shown improvements in the skin, nail, and scalp of adults with moderate to severe plaque psoriasis in two Phase 3 studies. If approved by the FDA around the September timeframe, analysts expect the drug to make about $1.2 billion in annual sales.

Conclusion

Though Otezla is the upcoming blockbuster, the company's current blockbuster is Revlimid. A hearing is set for 15May14 from a patient challenge. Fundamentally the company is fairly priced based on future earnings on next year's earnings growth potential. Financially, the efficiency ratios are rock solid. On a technical basis I believe the stock will only go higher from here as it already hit the bottom of the head and shoulders pattern. Due to the bullish technicals, high near-term earnings growth expectations, and high long-term earnings growth expectations I will be pulling the trigger here right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: A Dose Of Celgene For Your Portfolio Could Be Good For You