Is Celgene's New Rally Sustainable?

Nicholas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you do not have it in your portfolio, then you probably want to take a look at this stock. With a 52 week low of $58.53, the company just recorded a new 52 week high last week. Specifically, during the early trading hours Tuesday 8, Celgene (NASDAQ: CELG) hit a high of $89 within a matter of minutes; and it just can’t stop rallying as it hit $98 on Tuesday 15, premarket. The company also saw a number of analysts increase their price target on the stock, while others upgraded it to a Buy status last week.

For instance, Jefferies Group reiterated the stock at Buy and raised their price target from $94 to $104. Other firms that upgraded the stock include RBC Capital, from market perform to Outperform, adding $10 to their initial price target of $90. WallachBeth also added $10 to their initial price target of $89. On the other hand, Piper Jaffray analysts have one of the highest price targets on company at $111, up from $86.

The company’s fundamentals look equally impressive, but what perturbs me is whether it will be able to stick to its current rally. Currently it seems to be doing well. Fundamentally, the company tops its industry rivals and does seems unperturbed by the nature of its industry. Celgene’s main competitors include Vertex Pharmaceuticals (NASDAQ: VRTX), based in Cambridge Massachusetts, and the industry giant, Johnson & Johnson (NYSE: JNJ).

Celgene’s profit margin stands at 30.01 percent while its operating margin is pegged at 35.32 percent, as compared to that of industry giant Johnson & Johnson, which has 12.90 percent profit margin and 25.72 percent operating margin for the trailing 12months. Vertex Pharmaceuticals, on the other hand, has 7.27 percent profit margin and 17.44 percent operating margin.

Celgene's profit margins are astonishingly high, well above its competitors', which indicates excellent production cost management and control. This is a key advantage to the company as it gives it a high margin of safety. This will help stem down the level of probable loss in case of an adverse outcome on one of its bio products.

Celgene once again dominates the stats in revenue growth rate. According to the most recent quarter results, Celgene’s revenues grew by 13.60 percent as compared to Johnson & Johnson’s revenues, which were up 6.5 percent year-over-year. Vertex pharmaceuticals’ revenues fell by a whopping 49 percent.

The Biotech industry is believed to be one of the riskiest due to its contingent nature when it comes to investing in new products. However, Celgene seems to have played reasonably well over the recent past, which could arguably explain its recent rally. The stock has already hit a high of $98 per share. The company does trail the industry giant Johnson & Johnson in terms of revenue generated for the trailing 12-months, but more importantly, the growth rate would provide a good initiative for investors to look at it with the future in mind.

Bottom-line

Therefore, while analysts recommend investors to buy Celgene, I believe considering the unpredictability of the industry could go a long way in eliminating uncalculated optimism. Nonetheless, Celgene seems to be one stock that stands out in its industry, in terms of promise as the momentum gathers in 2013. It has consistently rallied since hitting a new high last week and seems to heading for the skies. Its fundamentals are also rebuttal to an unexpected fall, and fully support a price upwards of $100 per share before its Q4 results are made public.


Nmaithya has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and Vertex Pharmaceuticals. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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