(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Celgene Corp. (CELG) was once a biotech darling, with its stock rising by approximately 150 percent over the past five years. But the shares have fallen off a cliff in recent months, down by nearly 32 percent since October 19.
The stock has been hit by multiple rounds of bad news regarding its drug pipeline amid concerns about its growth outlook. But the market may have turned too negative on Celgene, with analysts looking for the stock to rise by roughly 28 percent, and currently trading with a 2019 P/E ratio below 10. (See also: Understanding The P/E Ratio.)
Celgene shares have been hammered since late October 2017, when the company discontinued a clinical trial for its drug mongersen to treat Crohn's disease, then lowered its long-term revenue growth outlook. The newsflow didn't improve in 2018, either, when the FDA rejected the company's application for its multiple sclerosis drug candidate, ozanimod.
The ongoing rounds of bad news have overshadowed the company's acquisition of Impact Bioscience for up to $7 billion, and Juno Therapeutic for $9 billion.
Growth Not All That Bad
Despite all the bad news around its growth outlook, analysts still expect Celgene's earnings to grow by nearly 13.7 percent in 2018 to $8.46 a share, and then accelerate to about 19.6 percent in 2019, and 19.5 percent in 2020.
Meanwhile, revenue is also expected to generate robust growth in the coming years, with projected growth rates of 13.9 percent in 2018 to $14.81 billion, followed by a 13.5 percent rise in 2019, and 14 percent in 2020.
CELG Annual Revenue Estimates data by YCharts
Analyst Still See Forecast Higher Prices
Currently, 55 percent of analysts have a buy or outperform rating on the stock, while 45 percent have a hold or underperform rating. Still, the average price target on the stock is about $118.60, and that represents a 28 percent upside from the stock's current price of $92.60. But some expect the stock to go even higher; RBC has Celgene rated as a top pick and set a $131 price target. (See also: Target Prices: The Key to Sound Investing.)
But risk still remains, and not all are bullish on Celgene. In fact, some point to the significants risks stemming from the company's recent $16 billion spending spree.
Celgene's fall from grace has been hard and well deserved, but the street may have turned too bearish on its shares and growth outlook. Current analyst estimates, price targets, and low p/e multiples may be a reflection of the extreme.
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.