Why we have a buy rating
We are reiterating our thesis on CELG following weakness on a competitor
downgrade, and in particular recommend buying ahead of next week’s 2014
financial guidance. What we highlight about our views and assumptions:
(1) We model 33% EPS growth in 2014. Our near $8/sh EPS estimate is based on
our belief that recently presented data for Revlimid in the newly diagnosed myeloma
setting will enable US Revlimid market share expansion as well as augment
treatment duration beginning in 2014. While our 7% market share gain in 2014
could prove aggressive prior to formal label expansion, we see 3% market share
expansion as very achievable, and see 2014 EPS in the $7.70-$7.80 range as a
reasonable base case
.(2) Apremilast not core to growth story, and consensus buy-side view remains cautious.
We recently cut our sales estimates for CELG’s impending launch for its
first oral immune/inflamm drug (apremilast, launch first for psoriatic arthritis) to ~1/3
of CELG’s 2017 projections, reflecting our cautious view on the product profile. Our
estimates are low on the Street, but we believe reflect a cautious buy-side view for
apremilast. Despite this cut, our model still predicts mid-high teens revenue growth
and mid-upper twenties EPS growth over the next several years
(3) Company’s long term growth profile not priced in. We currently model 2017
EPS of $14.61 on a $11.7B revenue base vs. CELG’s guidance of $13-$14 EPS
and $12B in revenues. We previously stated that we expect CELG to increase its
revenue guidance to $13B, driven by positive revisions to its hematology franchise,
with EPS moving to $15-$16/sh. With CELG shares trading at 10x the midpoint of
this EPS range, concerns that CELG is overvalued appear misplaced.
(4) Potential for Revlimid generics an important, but tired bear topic. The bear
thesis on CELG shares for the past 4-5 years has been that generic Revlimid entry
Too many sellers around 165. May have a better entry later.
or never if the $236 target price is correct.