Celgene Corporation (CELG) stock is moving lower along with the rout in the broader biotechnology industry over the last six months. Down 21%, Celgene stock looks no different than other mid-large cap biotech stocks. However, there is one thing that separates Celgene stock from the pack.
While other biotechs have fallen to more appropriate valuations, CELG was already fairly valued at its peak, and is now a can’t miss biotech, both for the short and long term.
Celgene Stock: Undervalued and Growing
Celgene is now trading at just 14 times next year’s per-share earnings expectations.
In comparison, Johnson & Johnson (JNJ), a company with little to no growth, trades at a slightly higher 15 times next year’s earnings multiple.
Celgene is on pace to grow 20% this year on revenue of $11 billion; 60% of those sales will be created from the company’s cancer drug Revlimid. Obviously, Revlimid is one of the best selling drugs in the world, producing double-digit growth with patent protection for another decade. Hence, CELG won’t experience the patent loss woes that have weighed on other large biotech and pharma stocks over the last five years.
However, Celgene is more than a one-trick pony. The company has another blockbuster cancer drug called Abraxane, and its drug Otezla is well on its way to blockbuster status after fourth-quarter growth of $183 million on growth of 284.5% year-over-year. Given these numbers, Celgene stock is worth far more than 14 times next year’s earnings.
To 2017 and Beyond!
Collectively, with Celgene’s existing drugs and robust pipeline, the company foresees revenue of at least $21 billion by 2020. If CELG can maintain an operating margin of 28%, then operating income should total nearly $5.9 billion by 2020.
In other words, there is no reason that Celgene can’t earn $10 to $11 per share by 2020, giving it a price to FY2020 EPS under 10!
That said, CELG stock is clearly a good buy, with the company traveling a very bullish road over the next four-five years. However, the best news of all is that it just gets better from that point forward.
Back in July of last year, Celgene acquired Receptos for $7.2 billion, and after doing so, it hiked its 2020 guidance from $20 billion to $21 billion. Yet, Receptos’s Phase-3 drug Ozanimod for treating ulcerative colitis and multiple sclerosis is all but a near certain FDA-approved drug, one with peak sales potential north of $5 billion. Celgene expects to realize just $1 billion from this $5 billion drug by 2020, which means the following five years look bright, too.
And let’s not forget that Celgene owns 10% of Chimeric Antigen Receptor Technology developer Juno Therapeutics (JUNO), and also have a drug development partnership with the company.
While Juno is still in the early phases of testing, it could very likely produce Celgene’s next Revlimid for beyond 2020, giving the company a clear path to revenue of up to $30 billion over the next decade.
When you put everything together, you have a can’t-miss investment opportunity in Celgene stock, both for the short term (over the next year or two), and for the long term (over the next decade.)
As of this writing, Brian Nichols was long CELG stock.
