Celgene (NASDAQ:CELG) continues to struggle. A series of self-inflicted wounds and a looming patent expiration plague the Summit, New Jersey-based firm. As a result, CELG stock has lost more than 40% of its value since its October 2017 high.
Now, as it moves forward with a new management team, pushes new drugs through testing, and integrates two new companies into the Celgene ecosystem, CELG stock looks well-positioned to recover.
CELG Stock and Other Drug Stocks Have Struggled Recently
The maker of cancer and immunotherapy drugs finds itself needing a cure from its poor decisions. To be sure, the loss of the patent for its multiple-myeloma drug Revlimid put management in a panic mode.
The purchase of Impact Biomedicines and Juno Therapeutics, both meant to compensate for the losses associated with Revlimid’s patent expiration, has placed a financial strain on CELG stock.
Also, the company saw a promising Crohn’s disease drug fail in late-stage testing last year. Furthermore, a failure to file paperwork on its multiple sclerosis drug ozanimod further harmed management’s reputation.
Attractive Growth and Valuation
Due to these missteps, CELG stock trades near its 52-week lows. However, despite the setbacks, investors may want to consider this stock. CELG stock remains a growth story. Profits increased by an average of 25.35% per year over the previous five years. Analysts expect the company to maintain a 19.07% average annual growth rate for the next five years.
Positive results on some recent drug tests reinforce these forecasts. Studies on its experimental drugs Tecentriq and Abraxane have both yielded positive results. Although nothing becomes sure until a drug receives final FDA approval, it stands as a good sign that growth can continue.
Buyers can also purchase this growth at a large discount. Because of the decline from the October 2017 high, the forward price-to-earnings (PE) ratio comes in at just over 11. This takes its price-to-earnings-to-growth (PEG) well below one.
My colleague Vince Martin takes a more cautious position on valuation, pointing out that other drug stocks have become cheap.
While I agree, examples he cites such as Biogen (NASDAQ:BIIB), Teva (NYSE:TEVA) and McKesson (NYSE:MCK) will see much slower profit growth over the next five years. While I am generally reluctant to use the “it will be different” phrase, CELG stock will likely move higher if estimates of net income growth hold.
Company Miscues Led to Management Turnover
Celgene has also seen turnover in its top management recently. Executive Chairman Bog Hugin announced his retirement in February. COO Scott Smith resigned in April. CFO Peter Kellogg announced he would retire next year. David Elkins, formerly of Johnson & Johnson (NYSE:JNJ) will replace him.
On the Board of Directors, Dr. Gilla Kaplan did not stand for reelection. Insurance veteran Pat Hemingway joined the board. Also, Hans Bishop, former CEO of Juno, joined.
While investors typically do not like to see so much turnover in management in so short of a time, strategic missteps probably made these changes necessary. Moreover, along with the low PE and the high growth rate, it gives investors more reason to get back into CELG stock.
Final Thoughts on CELG Stock
A new management team and new drugs appear to have placed CELG stock on a recovery path. Management miscues and the future loss of Revlimid have caused nervousness among Celgene shareholders. The stock has lost much of its value as a result.
However, new managers have come on board, and new drugs in the testing pipeline have shown promise. Despite the recent missteps, earnings growth estimates also remain high, and valuation has turned low. Given the cheap multiple and the growth likely to come, CELG stock could turn into lucrative play for investors.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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