(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Celgene's Corp.'s (CELG) stock has fallen by almost 16% so far in 2018. But shares have been trending higher since May. Technical analysis suggests shares rebound by 10% in the coming weeks, from its current price of around $87.60. Even better, analysts see shares rising by more than 28%.
The stock is attempting to recoup some of the significant losses it suffered during the fall of 2017, after results for some essential drugs in development disappointed investors. But the good news is that analysts now see revenue and earnings growing faster than the previous forecasts. (For more, see also: How Celgene's Big Acquisition Could Fire Up Its Stock.)
Celgene's stock has been trending lower since shares peaked in October of 2017 around a price of $147, falling to a low of around $75, a drop of almost 50%. But now, shares rose above a critical level of technical resistance around a price of $86.50 in July. That same price is now acting as a level of technical support. Should shares remain above $86.50, the stock could rise to technical resistance around $97. (For more, see also: Celgene's Sharp Sell-Off Is Likely Overdone.)
Bullish momentum is improving, and that suggests shares continue to rise as well. The relative strength index (RSI) has been trending higher since late May. The RSI started to increase when the stock was making new lows of around $75, a bullish divergence. With the RSI currently around 40, it still has plenty of room to continue rising, before reaching overbought levels of 70 or higher. That is another bullish sign for the stock price.
Better Revenue Growth
One reason the stock is rebounding is the forecast for better revenue growth. Since the beginning of July, analysts have increased their sales estimates for 2018 by 1.5% to $15.1 billion, up from a prior forecast of $14.9 billion. The outlook for 2019 and 2020 rise by about 1% for each year as well. Analysts now see revenue growth for the next three years at a compounded annual growth rate (CAGR) of about 13.8%, up from the previous forecast of 13.3%.
CELG Revenue Estimates for Current Fiscal Year data by YCharts
Earnings Growing Faster
Earnings for the company are climbing as well. Analysts now see earnings rising by more than 17% to $8.75 per share in 2018, up from prior estimates of $8.53. Analysts now see earnings growth for the next three years at a compounded annual growth rate of 20% up from a previous forecast of 17.5%.
Because of the better business outlook, the average price target for the stock is beginning to rise, after months of downgrades. Analysts now have an average price target on the stock of $113, up from a low of $110.
For Celgene's shares to continue rising, the company is going to need to deliver better results. But more importantly, the company will need to prove it has taken steps to bolster its drug pipeline to ensure revenue growth continues in the future.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.