Celgene Corporation Valuation – March 2017 $CELG

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 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  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 is an integrated global biopharmaceutical company. The Company, together with its subsidiaries, is engaged in the discovery, development and commercialization of therapies for the treatment of cancer and inflammatory diseases through solutions in protein homeostasis, immuno-oncology, epigenetics, immunology and neuro-inflammation. Its commercial-stage products include REVLIMID (lenalidomide), POMALYST/IMNOVID (pomalidomide), OTEZLA (apremilast), ABRAXANE (paclitaxel albumin-bound particles for injectable suspension), VIDAZA, azacitidine for injection (generic version of VIDAZA) and THALOMID (thalidomide). Its clinical trial activity includes trials across the disease areas of hematology, solid tumors, and inflammation and immunology. The Company also markets ISTODAX, which is an epigenetic modifier. The Company is also evaluating AG-221 (enasidenib) in combination with VIDAZA in newly diagnosed acute myeloid leukemia with isocitrate dehydrogenase-2 mutations.

CELG Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CELG – March 2017

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 $97,844,834,661 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.67 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 28775.00% Pass
6. Moderate PEmg Ratio PEmg < 20 32.62 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 15.31 Fail
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 3.67 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.74 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 $3.86
MG Growth Estimate 15.00%
MG Value $148.46
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $55.91
MG Value based on 0% Growth $32.78
Market Implied Growth Rate 12.06%
Current Price $125.77
% of Intrinsic Value 84.72%

Celgene Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.47 in 2013 to an estimated $3.86 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 12.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Celgene Corporation revealed the company was trading above its Graham Number of $36.93. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 32.62, which was above the industry average of 28.95. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.22.

Celgene Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.22
Graham Number $36.93
PEmg 32.62
Current Ratio 3.67
PB Ratio 15.31
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $10,867,500,000
Total Current Liabilities $2,959,200,000
Long-Term Debt $13,788,500,000
Total Assets $28,085,600,000
Intangible Assets $15,257,600,000
Total Liabilities $21,486,300,000
Shares Outstanding (Diluted Average) 803,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.12
Dec2016 $2.49
Dec2015 $1.94
Dec2014 $2.39
Dec2013 $1.68
Dec2012 $1.65
Dec2011 $1.43
Dec2010 $0.94
Dec2009 $0.83
Dec2008 -$1.73
Dec2007 $0.27
Dec2006 $0.09
Dec2005 $0.09
Dec2004 $0.08
Dec2003 $0.04
Dec2002 -$0.15
Dec2001 $0.00
Dec2000 -$0.03
Dec1999 -$0.05
Dec1998 -$0.06
Dec1997 -$0.09

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.86
Dec2016 $2.16
Dec2015 $1.94
Dec2014 $1.83
Dec2013 $1.47
Dec2012 $1.11
Dec2011 $0.68
Dec2010 $0.23
Dec2009 -$0.11
Dec2008 -$0.47
Dec2007 $0.14
Dec2006 $0.06
Dec2005 $0.04
Dec2004 $0.00
Dec2003 -$0.03
Dec2002 -$0.07
Dec2001 -$0.03

Recommended Reading:

Other ModernGraham posts about the company

Celgene Corp Valuation – December 2015 Update $CELG
Celgene Corporation Analysis – September 2015 Update $CELG
Celgene Corporation Stock Analysis – May 2015 Quarterly Update
28 Companies in the Spotlight This Week – 2/28/15
Celgene Corporation Quarterly Valuation – February 2015 $CELG

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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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