Celgene Corp (CELG)

Good pipeline of new drugs. Becoming a leader in cancer chemotherapy. Cheap now to buy, Lots and lots of potential.

Analysis of Celgene’s (CELG) fair value following their quarterly earnings presentation on Thursday October 22nd, 2009 where Celgene gave updated earnings guidance for the fourth quarter and year. Conclusion: Fair Value is $52 today and should be $64 by the end of 2009, in nine months. This analysis is based on the theory that price, earnings, and growth are related, and that the PEG Ratio, in my opinion, captures this best. The PEG ratio is the relationship between a company’s price/earnings multiple (P/E) to its growth rate (G).
TTM earnings = $1.56 (TTM = trailing twelve months)
Current price = $40.77 (Thursday, Aril 2nd, 2009 closing price)
Current P/E = 26.1

Growth rate to low end of company’s guidance = 31.4%
($1.56 2008 vs. $2.05 2009)

PEG ratio = 26.1/31.4 = .83, or undervalued.
At $49/share the P/E goes to 31.4, and PEG ratio becomes 1.00.

THEN… from that point forward, the stock should grow quarterly at the same rate as the earnings growth. If earnings grow by 11 cents when Q1’08 drops off and Q1’09 is added, then the growth rate is maintained at 31.4%. To keep the PEG at 1, the fair value of Celgene is $52 (31.4 X $1.67 = $52) on March 31, 2009, the end of the first quarter. By mid-year, trailing earnings of $1.78 would support a fair value of $55 (31 X $1.78). By October, earnings of $1.91 would take the fair value to $60, and a year from now, $2.05 earns us a fair value share price of $64.

If CELG hits the bottom of guidance at $2.05, then 31% growth gets us to a fair value using a PEG ratio of 1.00 of $64 ($2.05 X 31) next January 2010. Consensus 2010 estimates are at $2.69, which is 31% growth on top of $2.05. Assume the growth rate slows to 31% which would get us to $93 per share January 2011 ($2.69 X 31).
Here are the yearend fair value estimates for CELG based on a PEG of 1.00 for 2008 -2014:
• $49 year end 2008 on $1.56, growth rate of 31.4 and PEG of 1 (actual price was $55.28)
• $64 year end 2009 on $2.05, growth rate slows to 31 and PEG of 1, +$15/+31%
• $83 year end 2010 on $2.69, growth rate slows to 31 and PEG of 1, +$19/+30%
• $105 year end 2011 on $3.50, growth rate slows to 30 and PEG of 1, +$22/+26%
• $114 year end 2012 on $4.55, growth rate slows to 25 and PEG of 1, +$9/+9%
• $125 year end 2013 on $5.69, growth rate slows to 22 and PEG of 1, +$9/+8%
• $140 year end 2014 on $7.00, growth rate slows to 20 and PEG at 1, +$15/+12%

Strong EPS growth

sector change. gold is out. biotech in!

past experience and past profit made from this stock

target-71

Great biopharma company with unique drug.

Is WallStreet full of it or are these really some of the Fastest-Growing Stocks in S&P 500 Index

Customised therapies are the future of medicines and diagnostics

Healthcare demand is expected to rise over the next few decades largely caused by the overall life span increasing and the facilities needed for the nation's elderly. I would expect pharmaceutical companies and health care providers to have a positive outlook for the next years to come.

Strong development pipeline

good potential sector

Great company that had been hammered

Cancer therapy increasing required to cope with the number 1 disease afflicting mankind.

Been on a downtrend since July of 2008, yet its cancer drugs can offer strong growth prospects, and since they are potentially life-saving I can't imagine people not using them.

Company has a strong mechanism for drug development pipeline. They have a strong focus in cancer and myeloproliferative disorders.

Good pipeline and growth potential.

This is one of only 2-3 stocks that I've added to my portfolio that is a Large Cap and in the S&P 500, over 80% of my picks are Small or Micro cap. That should tell you that I'm very picky when it comes to bigger stocks, this is one that's just too good to pass up. Great time to buy & hold this big fish as it's still near it's 52 week low, but it wont be for long...

Negative preannouncement is a short-term setback for the shares but not for the company's franchise in the cancer market. Perhaps portfolio managers are frustrated with the underperformance of the healthcare sector relative to the S&P 500 in the past few weeks, which would account for the heavy selling volume today...

Celgene's long-term appeal has not changed: Revlimid is and will remain the drug of choice for multiple myeloma with massive growth potential in NHL and CCL as well as maintenance use. Revlimid is the safest, strongest drug out there with no competition. Tolerability characteristics and increased response rates over time mean that the drug can be used for a longer duration. The company's Vidaza drug (acquired by Pharmion) remains strong and will be more accretive to earnings over time simply due to its superior survival benefits and its exclusivity to the market outside the U.S. Vidaza also will benefit as it takes share from its biggest competitor, Dacogen, because it's a better drug.

The preannouncement was related to the slowing economy, which will impact most (if not all) companies. Celgene's customers held less than the typical two to three weeks' worth of product, and the company saw more free patients and co-pays. Importantly, though, Celgene indicated that prescription trends were strong in January and February (and likely March but the quarter just closed) in both the U.S. and in Europe.

Cancer medicine is not something that people "do without" to save money. You may get a better entry price as the analysts issue "pile on" warnings and downgrades tomorrow or the next day. Under $35 CELG is a buy: for CAPS purposes, CELG is a pick right here, right now...