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3 Reasons to Buy Celgene

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

Celgene (NASDAQ: CELG) stole the show at the JPMorgan Healthcare Conference last week. The company raised revenue and earnings guidance for 2015 and announced 2017 estimates. Wall Street was stunned when the company projected sales to double by the end of 2017.

Since the announcement, investors have made out like bandits with the stock rallying over 20%. Now traders are worried if Jamie Fox and Christoph Waltz are out to collect a bounty on overzealous bulls.

Yet despite the stock’s run, Celgene is still a good buy due to the company’s growth story, cheap valuation and multiple catalysts.

Great Growth Story

Celgene has had amazing success with its hallmark Revlimid drug. Sales surpassed $1 billion in the 4th quarter and expected to grow 9%-12% in 2013. The company is seeking European and Chinese approval, extending treatment duration and expanding uses to treat other diseases.

Celgene also has a robust pipeline of new drugs to feed growth over the next several years.

Abraxane:  Already used to treat breast and lung cancer, Celgene is seeking FDA approval to treat pancreatic cancer.

Pomalyst: Used to treat relapses of refractory myeloma.  An FDA decision is expected within a month and in Europe by the end of 2013.

Apremilast: Used to treat psoriasis, Celgene has reported positive results for Apremilast in Phases III testing. An FDA decision is expected by the end of February and in Europe sometime during the second half of 2013. JP Morgan analysts believe the market for Apremilast could be $500 million.

Celgene’s Revlimind drug and deep pipeline is translating into ample revenue and earnings growth. Sales are expected to grow 11% in 2013 to $6 billion with EPS guidance between $5.50 and $5.60 per share. Looking further out, sales are expected to double to $12 billion by 2017 with an EPS estimate of $13-$14. 

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Cheap Valuation

Celgene is still remarkably cheap.

At 17x forward earnings, Celgene trades at a discount to comparable large cap biotech stocks. Gilead Sciences (NASDAQ: GILD), Biogen (NASDAQ: BIIB) and Amgen (NASDAQ: AMGN) trade at 18.5x, 21.5x and 12.8x forward earnings respectively. 

<img src="/media/images/user_14324/celg3_large.png" />

Right now every Celgene investor is probably screaming, “You forgot growth!”

That's a good point bulls. A simple price to earnings ratio doesn't take into account the growth prospects of a firm. 

Celgene is the fastest growing company in the large bio-tech space with a projected 22% five year EPS growth rate. Once you factor in the company’s impressive expansion story, Celgene trades at an even bigger discount to peers on a PEG basis. 

<img src="/media/images/user_14324/celg4_large.png" />

Ample Catalysts

Celgene has lot of upcoming catalysts that can propel the stock higher over the next twelve months.

As previously mentioned, the company is facing several regulatory decisions by the FDA and European Medicines Agency. This will keep the stock on investor radar screens.

In addition, Celgene has room for multiple-expansion due to favorable earnings comps over the next 8-12 quarters as EPS growth accelerates. 

<img src="/media/images/user_14324/celg22_large.png" />

Foolish Bottom Line

Unlike the Oscars committee, investors are finally recognizing a good thing when they see it. Celgene still has a lot of upside due to the company’s accelerating growth, cheap valuation and ample catalysts despite the stock’s big run-up last week. 


RobertBaillieul has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences. 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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