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Summary

  • Celgene will continue to benefit from the increasing demand for its key growth driver Revlimid.
  • Celgene has good valuation metrics and strong earnings growth prospects; its PEG ratio is very low at 0.94.
  • Celgene raised its 2014 outlook.
  • Celgene has top-quality pipeline which should sustain long-term growth.

Celgene Corporation (NASDAQ:CELG) will continue to benefit from the increasing demand for its key growth driver Revlimid. Moreover, Celgene has top-quality pipeline which should sustain long-term growth. Since 2009, Celgene has achieved an impressive sequential quarterly average Revlimid net sales growth of 6.0%. CELG's stock has surged strongly since the start of 2013. In fact, its relative strength index (RSI) technical indicator is approaching overbought conditions. Since the beginning of 2013, CELG's stock has gained an astounding 134%. Nevertheless, in my opinion, CELG's stock still has room to move up. Celgene has good valuation metrics and strong earnings growth prospects; its PEG ratio is very low at 0.94. Furthermore, Celgene is generating strong cash flows and returns value to its shareholders by stock buyback.

The Company

Celgene Corporation, a biopharmaceutical company, discovers, develops, and commercializes therapies to treat cancer and immune-inflammatory related diseases in the United States and internationally. Celgene's key products are Revlimid for various cancers; Abraxane, which is also a cancer treatment; and Pomalyst, for myeloma. The company was founded in 1980 and is headquartered in Summit, New Jersey.

Valuation Metrics

The table below presents the valuation metrics of CELG, the data were taken from Yahoo Finance and finviz.com.

Celgene's valuation metrics are good. According to Yahoo Finance, CELG's next financial year forward P/E is at 18.74, and the average annual earnings growth estimates for the next five years is very high at 20.0%; these give a very low PEG ratio of 0.94. The PEG Ratio - price/earnings to growth ratio is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio, because it also accounts for growth. A lower PEG means that the stock is more undervalued.

Latest Quarter Results

On July 24, Celgene reported its second-quarter fiscal 2014 financial results, which beat EPS expectations by $0.01 (1.10%), and beat Street's consensus on revenues.

Celgene reported net product sales of $1,845 million for the second quarter of 2014, an 18 percent increase from the same period in 2013. Second quarter total revenue increased 17 percent to $1,873 million compared to $1,599 million in the second quarter of 2013. Adjusted net income for the second quarter of 2014 increased 15 percent to $748 million compared to $653 million in the second quarter of 2013. For the same period, adjusted diluted earnings per share increased 18 percent to $0.90 from $0.76, on a split-adjusted basis.

In the report, Bob Hugin, Chairman and Chief Executive Officer of Celgene, said:

Strong second quarter operating and financial results demonstrate the significant momentum of our portfolio and support raising our 2014 guidance. We look forward to multiple milestones in the second half of the year, including the expansion of OTEZLA® into psoriasis and the further advancement of our pipeline.

Dividend and Share Repurchase

Celgene is not paying dividends, however it has a share buyback program.

In the second quarter of 2014, Celgene purchased approximately 3.2 million of its shares on a pre-split basis at a total cost of approximately $475 million. As of June 30, 2014, the Company had $3,932 million remaining under the stock repurchase program. Year-over-year, the share count was down 3% at the end of 2Q14.

Competitors

A comparison of key fundamental data between Celgene and its main competitors is shown in the table below.

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Celgene has a lower PEG ratio than that of AMGN and BIIB, but not as low as that of GILD (see my article about GILD).

Technical Analysis

The charts below give some technical analysis information.

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Chart: finviz.com

The CELG stock price is 3.95% above its 20-day simple moving average, 5.67% above its 50-day simple moving average and 14.56% above its 200-day simple moving average. That indicate a short-term, mid-term and a long-term strong uptrend.

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Chart: TradeStation Group, Inc.

The weekly MACD histogram, a particularly valuable indicator by technicians, is at 0.89 and flat, which is a neutral signal (a rising MACD histogram that is crossing the zero line from below is considered an extremely bullish signal). The RSI oscillator is at 68.62 approaching overbought conditions.

Analyst Opinion

Many analysts are covering the stock, and most of them recommend it. Among the twenty-three analysts, nine rate it as Strong Buy, eleven rate it as a Buy, two rate it as a Hold, and one analyst rates it as an Underperform.

TipRanks is a website that ranks experts (analysts and bloggers) according to their performance. According to TipRanks, among the analysts covering CELG stock there are thirteen analysts who have the four or five star rating, eleven of them recommend the stock, and only two top analysts rate it as a Hold.

On July 25, Nomura Securities analyst Ian Somaiya reiterated a Buy rating and raised his price target on Celgene to $128.00 (from $126.00) following relatively in-line 2Q as the focus is shifting to the pipeline. According to Mr. Somaiya, Celgene's relatively in-line 2Q results and gradual pace of adoption for Otezla could shift focus to its pipeline.

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Source: TipRanks

Major Developments

Celgene's recent growth has been driven by Revlimid, which is used to treat a variety of cancers. Revlimid's sales represented 66.4% of Celgene's net sales for the past six-month period. Revlimid sales for the second quarter increased 15 percent to $1,214 million and were driven by volume in both the U.S. and International markets, increased duration of therapy and continued market share leadership in multiple myeloma. U.S. sales of $716 million and International sales of $498 million increased 15 percent and 17 percent, respectively.

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Data: Celgene's reports

Celgene has achieved an impressive sequential quarterly average Revlimid net sales growth of 6.0%.

On August 19, Celgene announced that data from a phase II study on Revlimid was published in the Journal of Clinical Oncology. The open-label, single-arm study evaluated Revlimid in combination with Roche/Biogen Idec's Rituxan in addition to cyclophosphamide, doxorubicin hydrochloride, vincristine sulfate and prednisone as a first-line therapy in patients suffering from diffuse large b-cell lymphoma. The combination of Revlimid and standard R-CHOP is known as R2CHOP. The study evaluated the efficacy of R2CHOP in the first-line DLBCL indication. Data from the study revealed that 98% of the patients eligible for response evaluation achieved overall response while 80% attained complete response. Moreover, the rates of progression free survival and overall survival were found to be similar across the various sub types of DLBCL by adding Revlimid to R-CHOP.

Celgene has filed regulatory applications in the U.S. and EU for the newly diagnosed multiple myeloma indication. The FDA target date is Feb 22, 2015, and in case it is approved, Revlimid sales will increase even further.

Along with second-quarter results, Celgene raised its 2014 outlook:

  • Total revenue raised to approximately $7,600 million from $7,500 million, an increase of approximately 17 percent year-over-year
  • Total Net Product Sales raised to above $7,500 million from the previous range of $7,300 million to $7,400 million, an increase of approximately 18 percent over 2013 Total Net Product Sales
  • REVLIMID® Net Product Sales narrowed to approximately $4,950 million from the previous range of $4,900 million to $5,000 million, an increase of approximately 16 percent over 2013 REVLIMID® Net Product Sales
  • ABRAXANE® Net Product Sales expected to be in the range of $850 million to $900 million
  • Adjusted diluted EPS raised to a range of $3.60 to $3.65 from the previous range of $3.50 to $3.60, an increase of approximately 22% over 2013 adjusted diluted EPS
  • GAAP diluted EPS is expected to be in the range of $2.46 to $2.55 from the previous range of $2.47 to $2.59

CELG's stock started its strong rally in January 2013 and continued to perform well in 2014. Since the start of the year, CELG's stock has gained 8.5%, while the S&P 500 index has risen 7.6%, and the Nasdaq Composite Index has increased 8.7%. Moreover, since the beginning of 2013, CELG's stock has recorded an astounding gain of 133.5%, while the S&P 500 index has increased 39.4% and the Nasdaq Composite Index has risen 50.3%. Nevertheless, considering its good valuation metrics and strong earnings growth prospects, the stock, in my opinion, still has room to move up.

My Take

I see strong revenue and earnings growth prospects for the company. Celgene has top-quality pipeline which should sustain long-term growth beyond current 2017 guidance, in fact, it has seven promising drugs in Phase III clinical trials (see Celgene pipeline page). Furthermore, Celgene is maximizing the potential of its drugs by researching for other indications, such as for Revlimid's newly diagnosed multiple myeloma indication. Other drugs like Abraxane, Pomalyst and Otezla, have strong growth prospects, Abraxane, for example, is poised to lead the pancreatic cancer market.

Conclusion

Celgene will continue to benefit from the increasing demand for its key growth driver Revlimid. Celgene has good valuation metrics and strong earnings growth prospects; its PEG ratio is very low at 0.94. Furthermore, Celgene is generating strong cash flows and returns value to its shareholders by stock buyback; operating cash flow was $516 million in the second quarter of 2014. Celgene ended the quarter with $6,213 million in cash, cash equivalents and marketable securities. All these factors bring me to the conclusion that CELG's stock still has room to move up.

Source: Why Celgene Stock Is Still A Good Investment Opportunity