Celgene's Compelling Growth Story

Apr. 3.12 | About: Celgene Corporation (CELG)

Celgene Corporation (CELG), a biopharmaceutical company, discovers, develops, and commercializes various therapies to treat cancer and immune-inflammatory related diseases, primarily in the United States and Europe.

CELG has a PEG (price earnings growth) ratio of 0.42, and a forward P/E ratio of 11.58. I project the stock will hit $100.00 per share in 2012 or rise approximately 28% from current prices.

Let's take a look at Celgene's earnings growth history, PEG valuation within their sector, an estimated price earnings (P/E) stock price, potential catalyst to drive the stock and technical analysis. CELG has a recent history of guiding conservative, then topping their own estimates comfortably.

Earnings Growth Guidance vs. Actual

  • In 2009 the company estimated non-GAAP earnings per share growth increase of 35%; the company achieved actual EPS growth of 33% year over year.
  • In 2010 the company forecast non-GAAP earnings per share growth increase of 25%; the company achieved a 34.6% increase.
  • In 2011 the company forecast a non-GAAP increase of 20% EPS growth; the company achieved a 35% increase.
  • In January of 2012 the company forecast a non-GAAP increase of 25% to $4.75 in earnings per share.

I am forecasting earnings per share growth rate 2012-2013 of 29.86% (even though the company has shown a recent history of achieving a much higher rate of growth). I and am taking zero consideration for the $2 billion stock buyback. I have a calculated PEG ratio of just 0.42.

Sector Comparison PEG Ratio

  • Amgen (NASDAQ:AMGN): .46 PEG Ratio
  • Biogen IDEC (NASDAQ:BIIB): 1.20 PEG Ratio
  • CELG: .42 PEG Ratio
  • Gilead (NASDAQ:GILD): .61 PEG Ratio

CELG has the lowest PEG ratio against its competitors, and I have not accounted for any future share buybacks into the ratio.

Forward P/E Ratio and Estimated Stock Price

CELG has a current forward P/E ratio of 11.58 including cash per share of 6.04 into the calculation. Below are estimated stock prices based on different P/E ratios assigned.

  • 15 PE ratio (conservative); you get a 2013 stock price of $92.55 or an increase of approximately 18%.
  • 17.5 PE ratio = $107.95, or 38% increase to current prices.
  • 20.00 PE ratio = $123.40, or 58% increase to current prices.
  • 25.00 PE ratio = $154.25, or 97% increase to current prices.

All assumptions are void of company stock buybacks and a 29.86% earnings per share growth rate in 2013 to 6.17 eps.

Potential Catalysts in 2012

Upcoming CELG Milestones, Product Event Date

  • Pomalidomide Submit filing for accelerated approval in US 1Q12
  • Revlimid Submit filing for first line treatment of NDMM in US 2Q12
  • Revlimid Submit filing of Revlimid for MDS del 5q in EU 1Q12 - confirmed submitted
  • Pomalidomide Complete enrollment of Phase III trials for R/R MM and myelofibrosis 1H12
  • Abraxane Complete enrollment of Phase III trial in pancreatic cancer 1H12
  • Apremilast Read out of Phase III psoriatic arthritis trial 1H12
  • Revlimid Potential approval for NDMM/maintenance in the EU 2Q12
  • Pomalidomide FDA acceptance of accelerated approval application 2Q12
  • Abraxane Read out of Phase III in melanoma Mid-2012
  • PDA-001 Proof of concept Phase II data 1H12
  • Apremilast Read out of Phase IIb data in Rheumatoid Arthritis 1H12
  • Revlimid Commencement of Phase III trial in follicular lymphoma 1H12
  • Abraxane Submit filing in NSCLC for the EU 1H12
  • Pomalidomide Submit filing for approval in R/R MM in the EU 1H12
  • AVL-292 Initiation of Phase II trials 2H12
  • Revlimid Read out MM-020 Phase III NDMM interim analysis 2H12
  • Revlimid Read out of MCL-001 Phase II R/R trial in Mantle Cell 2H12
  • Apremilast Read out of Phase III Psoriasis trial 2H12
  • Vidaza Initiate Phase III trial in MDS with oral formulation 2H12
  • Revlimid Read out of data in DLBCL-GCB 2H12
  • Abraxane Potential approval in NSCLC in US 4Q12
  • Pomalidomide Potential accelerated approval for R/R MM Late 2012/ Early 2013
  • Abraxane Read out Phase III trial in pancreatic cancer Early 2012

Catalyst information provided courtesy of Rodman and Renshaw.

Technical Analysis

Below is a monthly chart of CELG. The stock has closed above the all time high, around $77.50.

Click to enlarge.

Click to enlarge

Celgene is in the beginning of a growth spurt that should take their earnings to over $9.50 by 2015. With 23 potential catalysts in 2012, and a PEG growth ratio of just 0.42, the stock has plenty of upside from current prices and is extremely competitive within their sector. Technically speaking, the stock has just made a new all time high, so if considering purchase of shares, I would buy 1/3 of your anticipated position and add the rest on any pullbacks, with an average under $80.00 per share.

Disclosure: I am long CELG.