(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 was hammered over the past year, with shares down by more than 35% from its highs. But now, sentiment among investors and analysts are starting to turn more bullish. Analysts have begun raising their earnings and revenue forecasts, as investors have started lifting the stock off its lows.
Trouble for the company started last October when it discontinued a study for one of its drugs in development, followed by the company reducing its longer-term revenue forecasts. But then July came, and the company reported second-quarter results that beat estimates on both the top and bottom lines, and suddenly the trend, at least for now, started changing for the better. (For more, see also: Biotech Celgene May Rise 35% in 2018.)
Since reporting results, analysts have been increasing their growth targets for the company. Earnings per share are now seen growing by nearly 18% in 2018 to $8.75, that is up from prior forecasts calling for growth of more than 14%. Estimates for 2019 and 2020 forecast growth of roughly 20% in each year.
Revenue estimates have also improved for 2018. Analysts are now forecasting revenue to grow by more than 16% to $15.1 billion, up from prior forecasts calling for growth of more than 14%.
CELG EPS Estimates for Next Fiscal Year data by YCharts
Cheap Among Peers
Despite the recent rally in the stock, it is still trading at less than nine times 2019 earnings estimates, and that is by far the cheapest of the other three big biotech giants. Gilead trades at a valuation of nearly 12, but its earnings are forecast to fall by more than 25% in 2018, while revenue is expected to decline by more than 18%. (For more, see also: 4 Biotechs on Verge of Big Breakouts.)
Fundamental Chart data by YCharts
The technical chart suggests shares of the stock may continue to rise as well, by perhaps another 7% over the short-term to roughly $97. Should shares breakout and rise above $97, the next level of resistance doesn't come again until approximately $110, nearly 22% higher than the current stock price.
There is no doubting that Celgene stock was deserving of a steep decline after a series of missteps by the company, and perhaps even oversold in the process. But it does seem clear at this point that for the first time in nearly a year the trends for Celgene are once again going in its favor. If the company can continue to deliver perhaps the recent rally is just the start of the stock's road to recovery.
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.