Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Celgene Corp (CELG) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Celgene Corporation (Celgene), together with its subsidiaries, is an integrated biopharmaceutical company engaged primarily in the discovery, development and commercialization of therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation. The Company’s primary commercial stage products include REVLIMID (lenalidomide), ABRAXANE, POMALYST/IMNOVID, VIDAZA, azacitidine for injection (generic version of VIDAZA), THALOMID (sold as THALOMID or Thalidomide Celgene outside the United States), OTEZLA (apremilast) and ISTODAX (romidepsin). Celgene is involved in research in a range of scientific areas designed to deliver therapies, targeting areas, including intracellular signaling pathways, protein homeostasis and epigenetics in cancer and immune cells, immunomodulation in cancer and autoimmune diseases, and therapeutic application of cell therapies.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of CELG – December 2015
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $88,072,638,269 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 3.23 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -567.15% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 53.43 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 16.24 | Fail | |
| Score | ||||
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 3.23 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 2.04 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.07 |
| MG Growth Estimate | 15.00% |
| MG Value | $79.50 |
| Opinion | Overvalued |
| MG Value based on 3% Growth | $29.94 |
| MG Value based on 0% Growth | $17.55 |
| Market Implied Growth Rate | 22.46% |
| Current Price | $110.33 |
| % of Intrinsic Value | 138.78% |
Celgene Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth or stability over the last ten years, lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor has concerns with the level of debt in relation to the net current assets as well as the lack of dividends. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.
As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.68 in 2011 to an estimated $2.07 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 22.46% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Celgene Corp (CELG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$14.97 |
| Graham Number | $18.92 |
| PEmg | 53.43 |
| Current Ratio | 3.23 |
| PB Ratio | 16.24 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | Sep15 |
| Total Current Assets | $10,152,400,000 |
| Total Current Liabilities | $3,143,900,000 |
| Long-Term Debt | $14,297,900,000 |
| Total Assets | $27,369,200,000 |
| Intangible Assets | $15,457,800,000 |
| Total Liabilities | $21,993,700,000 |
| Shares Outstanding (Diluted Average) | 791,100,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $2.33 |
| Dec14 | $2.39 |
| Dec13 | $1.68 |
| Dec12 | $1.65 |
| Dec11 | $1.43 |
| Dec10 | $0.94 |
| Dec09 | $0.83 |
| Dec08 | -$1.73 |
| Dec07 | $0.27 |
| Dec06 | $0.09 |
| Dec05 | $0.09 |
| Dec04 | $0.08 |
| Dec03 | $0.04 |
| Dec02 | -$0.15 |
| Dec01 | $0.00 |
| Dec00 | -$0.03 |
| Dec99 | -$0.05 |
| Dec98 | -$0.06 |
| Dec97 | -$0.09 |
| Dec96 | -$0.08 |
| Dec95 | -$0.05 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.07 |
| Dec14 | $1.83 |
| Dec13 | $1.47 |
| Dec12 | $1.11 |
| Dec11 | $0.68 |
| Dec10 | $0.23 |
| Dec09 | -$0.11 |
| Dec08 | -$0.47 |
| Dec07 | $0.14 |
| Dec06 | $0.06 |
| Dec05 | $0.04 |
| Dec04 | $0.00 |
| Dec03 | -$0.03 |
| Dec02 | -$0.07 |
| Dec01 | -$0.03 |
| Dec00 | -$0.05 |
| Dec99 | -$0.07 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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