A number of biotech firms that have real long-term growth have for some reason, cheaper share prices than you’d expect, and Celgene Corporation (NASDAQ:CELG) could be one of the biggest bargains of all.
After reporting less than expected growth, CELG stock tumbled hard, like, really hard.
But that tumble may have just opened a huge buying opportunity for shareholders looking at the longer term.
CELG still has everything you could want in a mature, cash-rich biotech stock, and now investors can snag it for a song. In the end, Celgene still has plenty of muscle behind it. The market has just handed us a gift.
CELG Stock Slips
Crohn’s disease is a pretty terrible illness to have. And for CELG, the disease is proving to be bad as well. Celgene’s nearly 35% decline began when it reported that it stopped Phase 3 trials for its REVOLVE drug to treat the disease.
That primed the pump for traders. But what really disappointed them was the firm’s reported lower guidance for 2020.
That caused CELG stock to tank more than 20% in single day. And while the stock has recovered a tad bit, it still is sitting well below its recent 52-week highs hit back in October.
But that could be just the entry price investors are looking for.
For one thing, that lowered guidance was for several years away. Trader’s lost their minds over estimates for the future three years away. Even still, that guidance wasn’t even that bad.
Celgene’s estimated guidance for 2020 was for revenue of $19 to $20 billion with EPS estimates of $12.50 per share. You’re looking at compound annual growth rates (CAGRs) of 14.5% and 19.5%. That’s still some pretty high growth numbers and comes from its current stable portfolio of drugs.
That portfolio of winners such as blockbuster REVLIMID and OTEZLA will have CELG reporting 16% ore revenue and 23% more profit this year. So there really wasn’t a reason for traders to dump Celgene.
But even if you were concerned about the firm’s future, its pipeline should calm those nerves. That pipeline includes a variety of new oncology and cancer products, while several of its current drugs are being marketed and run through trials for different diseases.
Overall, Celgene is expected to receive approval for MS drug Ozanimod next year, followed by three more approvals in 2019 and three in 2020.
As these drugs work their way through trials, CELG has continued to partner with smaller biotech drug markers for hard to cure diseases.
The results from a 2016 partnership with Jounce Therapeutics Inc (NASDAQ:JNCE) should happen during the beginning of 2018 when it should begin phase three trials of a new cancer therapy.
For its $200 million investment, Celgene gains a valuable new avenue for cancer drug growth. And this is just one such deal the firm has completed in recent years.
Time To Buy CELG Stock
So the long term is actually rosy for Celgene. The market went crazy for really no reason. Yes, lowered guidance hurts, but the firm is still a sales machine and its pipeline continues to be rich with potential winners.
And it’ll have until 2022- when blockbuster REVLIMID goes off patent- to find or buy one.
With free cash flows in excess of a $1.1 billion per quarter and $12 billion in cash, cash equivalents, and marketable securities on its balance sheet, Celgene can do some pretty big deals if it had to. And it has to get its pipeline where it is today.
I would expect more junior partnerships as well as full on buyouts sooner rather than later.
Meanwhile, shares of the stock are now trading for a P/E of 24. That’s in line with the broader market and pretty cheap for a stock expected to grow earnings and revenues by double-digits over the next few years. And that’s before many of these current new drugs take hold.
CELG has growth, but that growth is being discounted by the market.
In the end, Celgene is a rarity in the biotech sector, a great mix of old and new trading for a decent price. For investors looking to beef-up their healthcare exposure. CELG stock has to be on your list. The long term picture is still rosy, even though traders are focusing on short term.
Disclosure: None. But the Author is planning on starting a long position in CELG.