I have not wrote anything beneficial on this site for a little while + I would like some feedback, so I thought I'd write a little report on CELG and a position I have been loading up on over the past week.
I was initially skeptical with taking a position in CELG because EVERYONE is bullish on the company.
Stocktwits - 95% bullish
Oppenheimer - "We see a double in the stock price"
Seeking Alpha has many bullish papers on CELG
View attachment 195162
View attachment 195163
Company Description
Celgene Corporation is a global biopharmaceutical company. The Company focuses on the discovery, development, and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases.
The company has been taking a beating due to a few drug failures (won't get into detail), we also have the Bio-pharma sector taking a beating over the past 6 months.
Current low multiples vs historical are grabbing attention from some "value" investors on the street.
P/EBITDA = 9.8
P/FCF = 11.22
ROE = 39.3%
P/B = 10.1 <- Looks high but it's because ROE is high and is expected to be at 62% by 2019.
about 2 weeks ago I started looking into CELG from technical stand point. CELG closely follows a few fundamentals very closely: Free Cash Flow, BookValue and ROE. Side note** EV and MKT cap currently have the largest spread between them since inception.
View attachment 195165
So my next step was to see how well the analysts are able to predict these fundamentals into the future, specifically for CELG. Then create a regression model to predict what the future stock price should be given the ROE, BookVal and FCF.
View attachment 195166
ROE and BookVal were very similar and EPS Ests vs Actual had the least variance where analysts almost always guess the actual value with near perfect accuracy.
Lastly the final step before creating the model was to see how these estimates change over time. Are analysts constantly changing their estimate by a large amount? If YES, then their current estimates have no real value to us TODAY.
View attachment 195167
View attachment 195168
The estimates do vary but not by a LARGE amount. We can safely use the estimates.
The Model
Market Cap ~ FCF + ROE + BookVal
adjusted R^2 of .79. Data goes back to 2000 & data is subsetted to only include time when book value was positive (6 quarters were removed)
I Plugged in the estimates for Annual 2019 and the we get a MKT of 112 B. The current MKT cap is 50B. OBVIOUSLY this is nuts right?! 120% gain in 14 months? Yea right!
Of course there was a lot of fundamental research I did as well both positive and negative. However fundamentals are not fun to talk about.
So I took a look at the options market For end of JULY 2019 and started accumulating the 80/85 Calls. Currently AVG cost for the 80 calls are 3.87 and 2.72 for the 85's.
Maybe I am just writing this so you guys will go out and buy CELG. LOL. But seriously i think there is a good risk reward here.
LET ME KNOW WHAT YOU GUYS THINK!!!!!!!
