Celgene (CELG) -- An Attractive Buyout Candidate At Current Levels
By ETF Channel Staff, Thursday, September 8, 12:01 PM ET
Article by Frank M. Bifulco, CFA - Alcott Capital Management
Celgene Corp (NASDAQ:CELG) is one of the few biotech or pharmaceutical companies able to grow the top line, maintain an excellent R&D pipeline, and also sell at a dirt-cheap valuation. Like Biogen Idec (NASDAQ:BIIB) or Amgen (NASDAQ:AMGN), CELG’s valuation has been compressed over the last decade, but unlike other undervalued biotech or drug companies CELG intends to do something about its share price: CELG recently announced a $2 billion stock buyback. Considering EPS are forecast to grow in excess of 20% the next few years but the shares trade at only 17x 2011 earnings and 15x 2012 earnings (huge P/E discounts to the trailing 10-year average multiple), that is probably a good use of shareholder money. CELG has been consistently conservative in their forecasts and guidance, preferring positive surprises
CELG is a Top Four holding with a 5.4% weighing in the iShares Nasdaq Biotechnology (NASDAQ:IBB) ETF, but comprises a lower rank in several other biotech or drug ETFs such as the SPDR S&P Biotech (AMEX:XBI) with a 3% weighing (9th largest holding), and not even a member of the Merrill Lynch Biotech Holders (AMEX:BBH). Partly this is a result of the ETFs focusing on companies with insiders agitating for restructuring or a sale as Carl Icahn did with Genzyme. The real kicker would be if a pharmaceutical company decided to take advantage of today’s rock-bottom interest rates and use the debt markets to fund a takeout of CELG which would enable them to better compete globally with Roche (RHHBY) and Novartis (NYSE:NVS), two leading drugs with top-notch cancer pipelines. Merck (NYSE:MRK) and Pfizer (NYSE:PFE) would certainly have interest, if they could work out the financing.
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