Summary
- Celgene is beating revenue expectations for the first half of 2018 and has increased full-year guidance, yet the stock price remains deflated.
- A PEG ratio of 0.54x is significantly lower than any other large-cap pharmaceutical company.
- Wall Street analysts expect an average of 27% upside potential in Celgene's stock price.
Celgene's (CELG) still trades well off of all-time highs (close to 40%), despite operating performance that continues to impress. Over the last year, investors have been spooked by the Revlimid patent cliff, lower long-term growth targets, and an embarrassing rejection of an Ozanimod filing by the FDA. With that being said, I consider Celgene's stock as the best valued large-cap pharmaceutical stock for the following reasons:
- Celgene's operating history has been impressive with revenue and profit growth consistently averaging 15-20% per year. This growth is expected to continue through 2020, given a young portfolio and growing clinical pipeline.
- Revlimid patent cliff fears are overblown, in my opinion. Celgene has been aggressively expanding its clinical pipeline through R&D and acquisitions. Perhaps, most importantly, Celgene's filing seeking approval of Ozanimod (MS drug) is back on track, which is critical to lessening the reliance on Revlimid.
- Celgene's valuation is at rock-bottom levels as validated by a comparables analysis, two-stage discounted cash flow model, and Wall Street's average price target.
