(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Celgene Corp.'s (CELG) stock appears to be on the mend, after falling by more than 40% since the middle of October. Now the technical charts are suggesting the stock is poised to rise by 14%, from its current price around $85.10. Even option traders are getting bullish on the stock, betting shares rise by about 12% by the middle of September.
The stock fell hard as investors turned bearish after several missteps by the company regarding its pipeline. The biotech company has been working hard in 2018 trying the turn the corner, by making two big acquisitions, helping to strengthen the pipeline. Analysts still see robust growth for the stock, while it also happens to be trading at its lowest valuation since 2015. (For more, see also: Biotech Celgene May Rise 35% in 2018.)
The technical chart suggests the stock may be set to rise in the coming weeks, as it nears a potential breakout at a technical resistance of $86.50. Should the stock rise above resistance, shares could increase to about $97. Additionally, the stock rose above a multi-month downtrend, which has been in place since the start of the year. The relative strength index has been steadily trending higher since hitting extremely oversold levels back in October; a bullish sign momentum is moving back into the stock.
Options traders are betting the stock rises by expiration on September 21. The number of puts and calls at the $80 and $85 strike prices are even, but the $90 strike price shows there are more bets being placed the stock will rise. These outnumber the bets placed that the stock will fall, with 5,100 open call contracts. However, some are betting the stock rises to about $96.50, based on the $95 calls, with nearly 9,000 open contracts. The calls at the $95 strike price cost about $1.20 per contract, and a buyer of those calls would need the stock to rise to about $96.20 to break even. (For more, see also: 4 Biotechs Ready for Big Rebounds.)
CELG Annual EPS Estimates data by YCharts
Despite the big decline in the stock, analysts' earnings and revenue estimates for 2019 have only fallen slightly, by just 2%. Analysts are forecasting earnings to rise by 14.5% in 2018, and by nearly 20% in both 2019 and 2020. Meanwhile, revenue growth is expected to be strong as well, rising by 14.5% in 2018, followed by growth of 12% and 13% in 2019 and 2020.
Despite the robust growth estimates, the negativity surrounding the stock has pushed its valuation to its lowest level since 2014, and to the lowest level versus the other big biotech's Amgen Inc. (AMGN), Gilead Sciences, Inc. (GILD) and Biogen Inc. (BIIB), at only 8.2.
Fundamental Chart data by YCharts
Celgene will need to deliver solid results when it reports second-quarter numbers at the end of July. Otherwise, the bounce back and the newfound bullish sentiment could turn sour rather quickly.
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.