Biotechnology firm Celgene Corporation (NASDAQ:CELG) will step into the earnings spotlight bright and early tomorrow morning. For Celgene stock bulls, this report will be about more than just quarterly earnings, however.
Historically, Celgene has a solid track record in the earnings confessional. The company has bested Wall Street’s targets in each of the past four reporting periods. Analysts are expecting another beat tomorrow morning.
By the numbers, Celgene is expected to post a profit of $1.96 per share, up from $1.68 per share a year ago. Revenue is expected to climb 17% year-over-year to $3.46 billion. Finally, EarningsWhispers.com puts the whisper number at earnings of $1.99 per share.
But another earnings beat won’t be enough. Despite this strong track record, Celgene stock has plunged more than 43% off its highs in the past 12 months. The shares have spent the past three months bouncing along key support at $85 as investors look for reasons to bid the shares higher.
Click to Enlarge Unfortunately, there have been few drivers for bullish buying activity on Celgene stock. Patent exclusivity on the company’s flagship medication Revlimid will expire soon. A late-stage study to expand Revlimid’s indications failed in December 2017, increasing investor concern.
For perspective, Revlimid is projected to bring in about $9.4 billion this year.
What’s more, Celgene’s attempts to revitalize its drug pipeline haven’t been promising. A filing for approval of the company’s ozanimod drug for relapsing multiple sclerosis was recently denied by the FDA. As a result, Celgene will probably need to re-run studies on the drug, delaying re-filing by at least a year if not longer, according to Morgan Stanley.
Despite all of this negativity surrounding Celgene stock, analysts remain heavily bullish on the shares. According to data from Thomson/First Call, 19 of the 31 analysts following CELG stock rate it a buy or better, with only one sell rating on record. The consensus price target is also lofty, coming in at $115.73 compared to Celgene stock’s close of $86.90 yesterday.
Turning to CELG options activity, speculative traders are quite bullish in the face of Celgene’s struggles. Currently, the May put/call open interest ratio comes in at 0.63, with calls on the verge of doubling puts among short-term options. Peak call OI totals more than 16,000 contracts at the overhead $90 strike. CELG would need to rally more than 3.5% just to put these options in the money.
According to May implieds, a 3.5% move in Celgene stock is more than possible. Currently, May CELG options are pricing in a post-earnings move of more than 7%. This places the upper bound at $93.36, while the lower bound lies at $80.44.
2 Trades for Celgene Stock
Call Spread: The recent plunge in Celgene stock could be a boon for CELG options traders. If the company can avoid any new surprises with tomorrow’s conference call, then an earnings beat and steady guidance should lift Celgene stock.
Traders looking to bet on a post-earnings rally might consider a May $87/$90 bull call spread. At last check, this spread was offered at 97 cents, or $97 per pair of contracts. Breakeven lies at $87.97, while a maximum profit of $2.03, or $203 per pair of contracts is possible if CELG closes at or above $90 when May options expire.
Put Sell: For those looking for a more neutral-to-bullish stance on Celgene stock ahead of earnings, a May $80 put sell has a solid chance of staying out of the money. At last check, this put was bid at 57 cents, or $57 per contract.
In this trade, you keep the premium as long as Celgene stock closes above $80 when May options expire. On the downside, if CELG trades below $80 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $80 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
