CIF Stock Recommendation Report (Spring 2015)

Transcription

1 Date:4/11/15 Analyst Name: Christine Nordlie and Connor Phelps CIF Stock Recommendation Report (Spring 2015) Section (A) Investment Summary Recommendation Buy: Yes No Limit Buy at $111 Sector: Health Care Current Price: Morningstar (MS) Fair Value Est.: $109 EPS (TTM): 2.49 Next Fiscal Yr. End Year : Month : 2015 December Forward P/E: % Inst. Ownership: 82% Company Name and Ticker: CELG Industry: Biotechnology 52 WK Hi: MS FV Uncertainty: High EPS (FY1): 1.75 Last Fiscal Qtr. End: Less Than 8 WK: Y N Mean LT Growth: 21.60% Inst. Ownership- Net Buy: Y N Target Price: 130 Market Cap (in Billions): $ WK Low: MS Consider Buying: $65.4 EPS (FY2): 1.69 If Less Than 8 WK, next Earnings Ann. Date: April 30, 2015 PEG: 0.81 Short Interest Ratio: 3.20 Stop- Loss Price: $90.4 # of Shrs. O/S (in Millions): $ EBO Valuation: MS Consider Selling: $ MS Star Rating: Three Stars Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) Analyst Consensus Recommendation: 1.67 Beta: 1.09 Short as % of Float: 1.80% 1

2 Investment Thesis Pros: - Earnings have beat five out of the five quarters - Vast majority of analysts from several different sources recommend a buy - Major drug Revlimid is generating substantial data and growth for the company - As of February 2015 approvals allow Revlimid for use in first- line multiple myelomas - Recent purchases made by Celgene have increased the positive moat. - Global markets are expected to double by Sales from Abraxane, Pomalyst/Imnovid and Otezla have collectively increased by 67% year over year - Collaborations with several biotech firms give them access to a greater amount of pipeline products Cons: In three- month stock price chart Celgene isn t performing as well as its competitors Side effects from the drugs Revlimid overseas could cause potential problems for Celgene in the future. The myeloma market is getting more competitive which can be seen as a threat for Celgene - Celgene may face patent challenges in Europe, which could limit them to a narrower scope of the patent Summary Provide brief summary of your analysis in each section that follows Company Profile: Celgene along with its subsidiaries is a global biopharmaceutical company with goals of discovering, developing and commercializing new drugs for the treatment of cancer and inflammatory disease. Fundamental Valuation: Our fundamental evaluation on the surface says our stock price is over valued, however it is important to take into considerations the drivers of a biotechnology firms stock price. Relative Valuation: The relative valuation gives us somewhat of a good estimate when looking at forward P/E and PEG. Although Regeneron s large numbers seem to skew the data. Revenue and Earnings Estimates: Celgene beat sales expectations four out of the five quarters, and beat earnings estimates all five quarters. The consensus estimates have a minor downward trend for both revenues and earnings. Only a handful of revisions were made in the last four weeks. Analyst Recommendations: Analysts have stayed consistent with their opinions of this stock; the majority of analysts recommending a buy. No analysts recommend a sell or underperform and mean ratings show a bearish outlook for Celgene. Institutional Ownership: Institutional Ownership in Celgene is 83.21% for stock ownership. Roughly 17% of Celgene s shares are held by the top four institutional holders. Short Interest: The short interest ratio is relatively low compared to its competitors being Celgene also has the lowest short % of float compared to its competitors. Stock Price Chart: The stock price has outperformed in both the 1- year chart and the 10- year chart and continues to have an upward trend. 2

3 Section (B) Company Profile (B- 1) Profile Company Overview Celgene along with its subsidiaries is a global biopharmaceutical company with goals of discovering, developing and commercializing new drugs for the treatment of cancer and inflammatory disease. Commercial stage products are approved and primarily sold in their major markets, the United States, the European Union and Japan. Their goal is to conduct break through research and development bringing new therapies to market targeting intracellular signaling pathways, protein homeostasis and epigenetics in cancer and immune cells, and immunomodulation in cancer and autoimmune disease and therapeutic applications (10- K). The company invests substantially in research and development to support trials of existing products as well as a pipeline of new drug candidates. With the use of commercial stage products, continued involvement in research and development collaborations, depth of their pipeline and government approvals will provide Celgene with ample future growth potential. Revenue/Earnings Breakdown Below is the breakdown of the company s revenues divided up into two sections shown on the statement of income, Net Product Sales and Other Revenue. The numbers displayed are in millions and account for the year- end December 31 st of each year displayed. Revenue from product sales have steadily increased over the past three years up 15%, 18% and 19% respectively and other revenue prove to be insignificant. Increase in total revenue of $1.177 billion in 2014 saw growth of 16.1% in the United States and 21.1% throughout international markets compared to 2013 (10- K). 3

4 9,000.00( 106.6( 6,000.00( 3,000.00( 121.1( 5,385.60( 131.6( 6,362.50( 7,563.80( Other(Revenue( Net(Produt(Sales( 0.00( 2012( 2013( 2014( Earnings like revenue has increased over the past three years but has made a substantial jump in 2014 over 42% compared to year 2013 s 4% growth. Management attributes their success to strong momentum with their core business segments (8- K). Earnings(Breakdown(!$3.00!!!$2.50!!!$2.49!!!$2.00!!!$1.50!!!$1.00!!!$0.50!!!$+!!!!!$1.69!!!$1.75!! 2012! 2013! 2014! Net!Income! Per!Share! An area worth noting after taking a look at the companies 8- K discussing Q4 as well as 2014 is currency exposure. With the indication for further USD strengthening in the coming year management is expecting this to negatively impact net product sales by upwards of 100 million (8- K). The company is however involved in a foreign currency risk management program to mitigate the volatility of foreign exchange rates. By taking future forecasted sales denominated outside the United States Celgene can hedge against unfavorable changes. They 4

5 currently mitigate the exposure from the Australian Dollar, British Pound, Canadian Dollar, Euro and the Japanese Yen. Over 78% of this management program is focused in the Euro. Product Portfolio The products shown above are their primary commercial stage products used to treat cancer and inflammatory disease. Celgene is clearly dependent on the success of Revlimid as well as the six drugs below it. Though sales from Revlimid are substantially greater than other products, sales from Abraxane, Pomalyst/Imnovid and Otezla have collectively increased by 67% year over year. In the United States Celgene s Revlimid or Thalomid is used by almost 70% of first line patients (Morningstar). Success is dependent on regulations across the world not only by drug regulators but also by opinion leaders, physicians and patients (10- K). Top performers Revlimid, Abraxane, and Pomalyst/Imnovid all hold patents in the United States until 2027, 2026 and 2024 respectively and in Europe until 2024, 2022 and In the preclinical and clinical- stage pipeline there is development in oral anti- inflammatory agents, Cereblon Modulatory drugs, and Cellular therapies. Drug CC- 486 is the newest drug to get to phase three trials back in 2013, used for Acute Myeloid Leukemia (AML). Increase in total revenue of $1.177 billion increased 16.1% in the United States and 21.1% throughout their international markets compared to 2013 (10- K). Competitive Landscape Products held by Celgene face competition from not only new innovative drugs but generic ones as well. Speed is the key factor keeping the competition at bay so efficiency essential. Morning star gives them a narrow economic moat due to their extensive patent protection in hematological oncology. Thalomid, which was once the key drug when it was introduced, has now taken the back seat to Revlimid which is less toxic and more potent. Due to the immense pricing pressure of Celgene s expensive drugs, one company Natco and partner Actavis could find a way to challenge the patents. If successful this would lead to a generic form of Revlimid before the patents are set to expire in 2027 (Morningstar). This would significantly 5

6 impact net product sales as Revlimid is the top performer by a long shot. However due to the incredible time spent developing these drugs it is often hard to perfectly imitate products especially for biopharmaceuticals. Sensitivity to Business Cycle & Macro Environment Compared to other sectors in the S&P 500 the Health Care sector has traditionally been defensive. The products Celgene produce are used by sick people around the world and are always going to be in demand. Due to the immense backing of their top selling drug Revlimid, growth can be attained due to the demand of the product and not because they will have to increase prices in the future (Morningstar). For the macro environment outlook is strong this year beginning with the recent regulatory approvals (Feb 15 ) for Revlimid in first- multiple myelomas. This should significantly push earnings in the right direction when compared to the sluggish return of the market in quarter 1 of this year. Life Cycle Stage Growth is pretty common when looking at the Biotech companies. Celgene along with its competitors want to be on the forefront of innovation. Companies will continue to invest heavily in research and development so they can provide beneficial treatment to sick individuals. Like Celgene, companies compete to gain a significant market share with their blockbuster (Revlimid). Once the product is out on the market though it is only a matter of time before another competitor makes it cheaper or more effective. Major Risk Factors and Industry Specific Development Major risks outlined in the 10- K report are as followed. Our Operating results are subject to fluctuations o Currency risk especially We are dependent on the continued commercial success of our primary products o Top seven performers Our future commercial success depends on gaining regulatory approval for products in development, and obtaining approvals for our current products for additional indications. If we fail to comply with laws or government regulations or policies Sales of our products will be significantly reduced if access to and reimbursement for our products by governmental and other third- party payers and reduced or terminated 6

7 o The drugs produced buy Celgene are extremely expensive and insurers (especially government regulated) are beginning to not allow for reimbursement and will for generic drugs The Affordable Care Act and other legislations may affect our pricing policies and government reimbursement of our products o Changes to the Healthcare Reform Act increasing the minimum rebates manufactures are required to pay Our ability to sell our products to hospitals in the United States depends in part on our relationships with purchasing organizations (B- 2) Revenue and Earnings History (Refer to the guidelines document for revenue and earnings data to be included) 1) It is pretty apparent that Celgene has done very well over the last four quarters in both FY2014 and FY2014. The trend has been up with a small bump down after Q1 in There does not seem to be any seasonal patterns other than it trending up throughout the year. 2) Earnings have also produced strong numbers over the past two years. A slightly noticeable seasonal trend could be a slight drop in Q3 as we have seen a slight decrease in 2013 and

8 (B- 3) Most Recent Quarterly Earnings Release 1) When was the company s most recent earning release? a. Celgene s most recent earnings release was on January 29, ) In that earnings report, was reported revenue a (1) beat, (2) match, or (3) miss from consensus estimate? a. Beat 3) Likewise, was reported earnings a (1) beat, (2) match, or (3) miss from consensus estimate? a. Beat 4) What did the management attribute the beat/miss to? a. They attributed the beat to strong sales from Revlimid and Abraxane whose fourth quarter earnings increased 16% and 17% respectively. In the conference call issued after the quarter attributed excellent quarter to growth amongst their product portfolio as well as leverage in the P&L (Peter Kellogg, Conference Call). 5) Did the management provide guidance about their current quarter and their outlook for the year? What were the key points of the guidance? a. Management predicts that over the coming year net product sales will be $9,000 to $9,500 million, for an increase of 22.3% (Celgene Q4 Earnings Release) b. Revlimid and Abraxane will increase 13.5% and 32.6% respectively (Celgene Q4 Earnings Release) c. Diluted EPS is expected to grow 26% with a range of $4.60- $4.75 (Celgene Q4 Earnings Release d. Adjusted Operating margin will improve by approximately 140 basis points and sit near 52 percent (Celgene Q4 Earnings Release) 6) How did the stock react to that earnings release? a. After the earnings release the stock jumped up $1.29 for the day but then following the earnings release the stock fell until February 4 th. 8

9 Section (C) Fundamental Valuation (EBO) CELG PARAMETERS FY1 FY2 Ltg Long-term Gowth Period ( Years) EPS Forecasts % 5 Total Equity Preferred Stock 0.00 Book Value (end of last fye) Fundamental Valuation (EBO) Common Equity Shr. O/S Model 1: 9, 10, or 12-year forecasting horizon (T=9, 10 or 12). Book value/share (last fye) with a 4, 5 or 7-year growth period. 30- Year T-Bond Rate 2.53% E(r m) 7.00% Beta 1.09 Discount Rate 7.40% Dividend Payout Ratio (POR) 0.00% Please&download&and&save&this&template&to&your&own&storage&device Next Fsc Year end 2015 You only need to input values to cells highlighted in "yellow" Current Fsc Mth (1 to 12) 4 The rest of the spreadsheet is calculated automatically Target ROE (industry avg.) 19.92% Please read "Guidelines_for_FundamentalValuation_ProfLee_Spreadsheet" file carefully Year Long-term EPS Growth Rate (Ltg) Forecasted EPS Beg. of year BV/Shr Implied ROE ROE (Beg. ROE, from EPS forecasts) Abnormal ROE (ROE-k) growth rate for B (1-POR)*(ROEt-1) Compounded growth growth*aroe required rate (k) Compound discount rate div. payout rate (k) Add to P/B PV(growth*AROE) Cum P/B Add: Perpetuity beyond current yr (Assume this yr's AROE forever) Total P/B (P/B if we stop est. this period) Implied price Check: Beg. BV/Shr Implied EPS Implied EPS growth Inputs (provide below input values used in your analysis) EPS forecasts (FY1 & FY2): 4.81 and 6.13 Long- term growth rate: 25.53% *** Indicate next to the number if you made an adjustment to the consensus LTG estimate. Justify at the bottom of this panel how you derive the adjusted value, if any *** Book value /share (along with book value and number of shares outstanding): Book value: 6,524.8 (Million) # of shares outstanding: (Million) Book value / share: Dividend payout ratio: 0 Next fiscal year end: December 31, 2015 Current fiscal month: 4 Target ROE: 19.92% *** Indicate next to the number if you made an adjustment to the target ROE estimate. Justify at the bottom of this panel how you derive the adjusted value, if any *** 9

10 Discount rate 7.27% Output Input for discount rate: Risk- free rate: 2.53% Beta: 1.09 Market risk premium: 7.0% Above normal growth period chosen: 5 year abnormal growth period *** Justify at the bottom of this panel your choice of abnormal growth period *** EBO valuation (Implied price from the spreadsheet): $ ) Comment on the fundamental value obtained in relation to the stock s current price and its 52- week price range. a. Relative to the 52- week rang of Celgene the implied price from the EBO suggests the price of This price seems to be a little overvalued seeing how the 52- week high is When looking at what drives the stock prices of firms within the healthcare sector, and especially biotechnology you have to take into consideration the product portfolio. Strong products like Revlimid for Celgene continue to grow and pushing up revenue making the stock more desirable. We must also take into consideration the sustainability of these products and their pipelines. With Celgene, Morningstar is confident that by 2019 they should be able to double their global market from $8,000M to $16,000M (Morningstar). We chose a 5- year abnormal growth period as a conservative measure. Celgene has been able to hold off competition due to the strong patent protection, however there is some speculation by 2019 generic competition could bypass the barriers to entry. Specifically companies are targeting Celgene s drug Revlimid which is essential for long term growth. Because the products produced by Celgene are expensive and insurer pressure for reductions in prices, generic competition could significantly impact net product sales. 2) What might be soft spots of the inputs? And why? a. Because the sector and industry has high growth ratios it is difficult to get a accurate evaluation. These companies are driven by product sales and If any macro environment (government regulation, litigation) events took place this could significantly impact a company s stock price. 10

11 Sensitivity Analysis EBO valuation would be (you can include more than one scenario in each of the following): $ if changing above normal growth period to 7 years $ if changing growth rate from mean (consensus) to the highest estimate 30.00% $ if changing growth rate from mean (consensus) to the lowest estimate 22.50% $ if changing discount rate to 9.04% $ if changing target ROE to 18.08% There are not many significant changes to the implied prices when performing the sensitivity analysis. The only value to change dramatically was when we made a change in the discount rate. We initially gave the company a conservative estimate of the expected market return due to the current state of the market this year. Due to the performance over the past 5 years Celgene has consistently outperformed the S&P 500. With an adjustment to the expected market return of 8.5% this dropped the implied price down to a more reasonable estimate of $ Section (D) Relative Valuation CELG Mean)FY2) Earnings)Estimate Forward Mean)LT) PEG P/B ROE) Value P/S P/CF Ticker Name Mkt)Cap Current)Price (next)fiscal)year) P/E Growth)Rate (MRQ) 5)yr)ave Ratio TTM TTM 1 GILD Gilead)Sciences)Inc. $(((( 146, $((((((((((((((((( $(((((((((((((((((((((((((( % % AMGN Amgen)Inc. $(((( 118, $((((((((((((((( $(((((((((((((((((((((((((( % % BIIB Biogen)inc. $(((((( 96, $((((((((((((((( $(((((((((((((((((((((((((( % % REGN Regeneron)Pharmaceuticals $(((((( 44, $((((((((((((((( $(((((((((((((((((((((((((( % % CELG Celgene $(((((( 90, $((((((((((((((( $(((((((((((((((((((((((((((( % % Implied)Price)based)on: P/E)(forward) PEG P/B Value P/S P/CF 1 GILD Gilead)Sciences)Inc. $57.41 $ $77.03 $36.47 $59.70 $ AMGN Amgen)Inc. $91.66 $ $37.07 $44.14 $55.11 $ BIIB Biogen)inc. $ $ $72.12 $77.44 $92.76 $ REGN Regeneron)Pharmaceuticals $ $ $ $ $ $ High $ $ $ $ $ $ Low $57.41 $ $37.07 $36.47 $55.11 $32.66 Mean $ $ $62.07 $52.68 $69.19 $ ) Discuss various valuation multiples of your stock and its peers. Comment if any of these stocks have multiples far off from the others and explain whether it makes sense. a. Forward P/E ratios are all relatively close together, ranging from 9.05 to Celgene sits nicely in between the four competitors at and this can be seen as a positive sign because analyst are confident on the earnings projections for FY2 b. For the PEG there was a range from With the PEG ratio you want to be on the lower end when compared to others because that means you might be undervalued. Celgene came in at 0.82 which was the second lowest and as a rule of thumb PEG s under one provide a positive signal for the firm. 11

12 c. Price to Book doesn t provide any positive signals when looked against its competitors. They range from and Celgene comes in at which is the second highest. P/S gives us relatively the same story with a range from , Celgene again comes in with the second highest P/S ratio of d. The P/CF gave us a little bit of a skewed response with a range from Again Celgene has the second highest ratio at 38.53, although the company extensively puts money into research and development which could provide some backing to this ratio. 2) Discuss the various implied prices of your stock derived from peers ( Comparables ) multiples. Compare these implied prices to current price and 52- week high and low. How different are the prices derived from the various valuation metrics? Note any valuation metrics that seem to yield outlier prices and explain whether it makes sense. a. When looking at the implied prices first using the forward P/E, it does give us a relatively close estimate, as the low is close to the 52 week low. Median from the P/E is closer to the 52 week high, but if I were to take out Regeneron s values we would see a more comparable low, median, high. PEG doesn t provide us with any positive facts as the range is nothing like Celgene s 52 week range. With the absence of Regeneron s P/B value we get a more reasonable high value, but the low and median estimates are slightly below the 52- week lows. The P/S and P/CF implied prices do not line up with the 52- week range as well as the P/E and PEG. I decided to take out Regeneron again from both means because it was a significant outlier. 3) Compare your findings with comments from analysts from Morningstar Direct and other online resources. a. Analysts agree that the trajectory of Celgene will continue to rise. Reports shared by analysts on Morningstar suggest that it is important the company s demand is dictated by the demand for their blockbuster drug Revlimid rather an increase in price (Morningstar). Also analysts have lowered their cost of equity assumption down 0.5% to 7.5%. Section (E) Revenue and Earnings Estimates (E- 1) Copy/Paste Historical Surprises Table from Analysts tab (include both revenue and earnings; make note that revenues might be in millions ) Review recent trends in company s reported revenue and earnings, and discuss whether NOTE: Reuters does not put the sign on the surprise. You need to put a - sign when it is a negative surprise. 12

13 * Revenues: Quarter Ending March- 14- Surprise is % The company has a pattern of surprising the market with numbers different from analysts estimates? Were the surprises positive (actual greater than estimate) or negative (actual less than estimate)? Celgene had beaten the analyst s estimates four out of the five earnings in the past five quarters. The only quarter that Celgene missed was in the quarter ending in March- 14, however the surprise wasn t too large, it was only a $35.10 different or 1.99%. When looking at the sales dating back a few quarters, it seems that the revenues are in an upward trend with no sign of decrease in total sales. Were the surprises more notable for revenue or earnings? The surprises were more notable for the earnings with no negative surprises. The estimates made by the analysts ranged from compared to the actual earnings. The largest surprise for the earnings was in Quarter endings Sept- 14 that was 2.58%. (E- 2) Copy/paste Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) Review the range and the consensus of analysts estimates. 13

14 Percent Difference of High Estimate from Mean (Revenue) Q1: 1.04% Q2: 1.06% FY1: 1.06% FY2: 1.12% Percent Difference of Low Estimate from Mean (Revenue)- Negative Q1: 1.04% Q2: 1.05% FY1: 1.04% FY2: 1.09% Percent of Difference of High Estimate from Mean (EPS) Q1: 1.05% Q2: 1.10% FY1: 1.08% FY2: 1.23% Percent Difference of Low Estimate from Mean (EPS)- Negative Q1: 1.06% Q2: 1.11% FY1: 1.04% FY2: 1.10% Are the divergent more notable for the current or out- quarter, FY1 or FY2, revenue or earnings? When looking at the revenues, they seemed to be very similar in both quarters, however the more recent quarter has the more notable divergent. The divergent is more notable in FY2 than in FY1 because the percentages are higher in both earnings and revenues. Note the number of analysts providing LT growth rate estimate. Is that roughly the same as the number of analysts providing revenue and earnings estimates? 14

15 Six different analysts provided long- term growth rates. This is just a fraction of the analysts that provided estimates for the revenues and earnings, which was about (E- 3) Copy/paste Consensus Estimates Trend Table from Analysts tab (include both revenue and earnings) Review recent trend of analysts consensus (mean) estimates on revenue and earnings. Are the consensus estimates trending up, down, or stay the same? The consensus estimates are remaining pretty consistent throughout the revenues with just a minor upward trend in the most recent quarter, June 2015 between 2 months ago and one month ago. The consensus estimates seem to be the exact same throughout all the earnings. Is the trend more notable for the near- or out- quarter, FY1 or FY2, revenue or earnings? The trend is more notable for FY1 than FY2, however both FY1 and FY2 remain relatively consistent in both revenues and earnings. (E- 4) Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) 15

16 Review the number of analysts revising up or down their estimates (both revenue and earnings) in the last and last four weeks. Note whether there are more up or down revisions? Are the revisions predominantly one directional? In the last 4 weeks there seems to be more ups than downs. In both earnings and revenues the ups are a greater number than the downs. Any notable difference last week versus last four weeks, revenue versus earnings? There were no ups or downs in the past week for either revenues or earnings. (E- 5) Consensus Earnings Revisions from CNBC Go to news, earnings, calendar, consensus revisions. Look for whether your stock had consensus earnings revision today. Revision Revision Revision Current Previous % Change # of Analysts 16

17 Date Type Up/Down Reporting Most recent revision date N/A N/A N/A N/A N/A N/A N/A Earliest revision date in the last month 1) Make note of the company s (1) last earnings reporting date, and (2) next earnings reporting date. There were no reporting s made in the month of March. Last Earnings Report Date: January 29, 2015 Next Earnings Report Date: April 30, ) Review revisions day by day, and comment on (1) whether they tend to be clustered, and (2) if clustered, were they near earnings reporting date? N/A 3) Were there any greater than 10% consensus revisions? What is the maximum % consensus revision? N/A 4) Observe stock price chart, how did the stock trade around dates of greater than 10% consensus revisions? N/A 5) Other observations worth noting? N/A 17

18 Section (F) Analysts Recommendations (F- 1) Reuters Most Recent Three Months Analysts Recommendations Copy/paste the Analyst Recommendations and Revisions Table from 1) Review the trend of analyst recommendations over the last three months. Is there a notable change of analyst opinions, turning more bullish or bearish? There have been no notable changes in analysts opinions in the past three months, with the majority of analysts recommending a buy which accounts for about 55%, and about 38% recommending an outperform. The mean rating rose from 1.58 three months ago to 1.67, which implies that the analysts have a more bearish outlook on this stock. 2) How many different ratings out of the five possible ones did the company receive currently, one, two, and three months ago? Three months ago, 13 analysts recommended a buy, nine recommended outperform, one recommended a hold, one recommending underperform and zero analysts recommended sell. There was a minor change 2 months ago with one more analyst recommending a hold, which brought this number up to 2. One month ago results had a minor change as well, with an increase in the amount of buys, which went up to 14. Currently all the numbers remained consistent except for the amount of analysts recommending buy dropped from 14 to 12. 3) Is there a notable trend of opinion convergence or divergence? Over the past three months, ratings seemed to be very consistent with the majority of analysts recommending buy, followed by outperform, and only a small number recommend 18

19 hold and underperform. These ratings show the confidence the analysts have in the company s performance. 4) Cross check (1) Morningstar analyst s research report; and (2) media or other analysts comments from online financial sites. Is what you see here consistent to comments elsewhere? According to Morningstar analyst s, 8 recommend to buy and only 2 recommend to hold. This was consistent to the opinions of the analysts on NASDAQ, with the majority of them recommending strong buy. 5) Other observations worth noting? N/A 19

20 (F- 2) Most Recent One Month Analysts Upgrades/Downgrades from CNBC Go to news, earnings, calendar, upgrades and downgrades. Revision Date Current Recommendation Previous Recommendation Firm Last Revision Most recent revision date N/A N/A N/A N/A N/A Earliest revision date in the last month 1) Make note of the company s (1) last earnings reporting date, and (2) next earnings reporting date. There were no upgrades or downgrades in the month of March. Last earnings report date: January 29, 2015 Next earnings report date: April 30, ) Add up the number of upgrades on weekly basis. Do the same for downgrades. Were there more up- or down- grades? Were there any consistent trend you observe in the recent month? Were there any up- or down- grades of more than one grade? N/A 3) Were there clustering of up- or down- grades? If so, were they clustered around earnings report date? N/A 4) Observe stock price chart, how did the stock trade around dates of up- or down- grades? N/A 5) Other observations worth noting? N/A 20

21 Section (G) Institutional Ownership (Guidelines Have Been Updated) 21

22 Combine information provided in all three sections to discuss: 1) Whether institutions, on net basis, have been increasing or decreasing ownership and whether the change can be considered as substantial On a net basis institutions have been decreasing ownership over the last three months. The net change is - 17 which accounts for % of the total shares which is just a minor change. 2) Whether the stock has sizable institution interests/support Celgene has large institution interests with a holding of 85.19%. 3) The extent of the (> 5%) owners by adding up all >5% ownership, and make an effort to identify those that are mutual funds The extent of >5% owners is 16.87% if you are adding up Vanguard Group, Inc (Mutual Fund), State Street Corp (Mutual Fund), Fidelity Management and Research Co (Mutual Fund), and T. Rowe Price Associates, Inc (Mutual Fund). 22

23 Section (H) Short Interest (Guidelines for H- 2 Have Been Updated) (H- 1) Short Interest Data from (NASDAQ s website) Celgene Corporation Gilead Sciences 23

24 Novo Nordisk 24

25 25

26 (H- 2) Short Interest Data From Copy/paste required data from the share statistics table to the following table for (1) your stock, and (2) two competitors (in separate tables). Celgene Corporation Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 5,682,970 7,365, M M Shares Short Short Ratio Short % of Float Shares Short (March 13, 2015) (March 13, 2015) (March 13, 2015) (Prior Month) 14.54M % 12.78M Gilead Sciences Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 13,304,400 12,065, B 1.48B Shares Short Short Ratio Short % of Float Shares Short (March 13, 2015) (March 13, 2015) (March 13, 2015) (Prior Month) 55.99M % 56.21M Novo Nordisk 26

27 Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 1,665,030 3,608, B 1.88B Shares Short Short Ratio Short % of Float Shares Short (As of March 13, 2015) (As of March 13, 2015) (As of March 13, 2015) (Prior Month) 3.70M 2.80 N/A 3.55M 1) Make note of the company s (1) last earnings reporting date, and (2) next earnings reporting date. Celgene Corporation Last Earnings Report Date: January 29, 2015 Celgene Corporation Next Earnings Report Date: April 30, ) Discuss market sentiment on the stock based on the short interest statistics, recent trend reported in in (H- 1) and (H- 2)? Has the sentiment turned more bullish or bearish over the last year? How about in more recent month and why? When comparing the short interest data of Celgene and its competitors Novo Nordisk and Gilead Sciences, you can see that the short ratio for Celgene follows in the middle of the two with a 3.20 versus 2.80 and Because this ratio is below five, it indicates that Celgene has a bullish market sentiment. Celgene also falls in the middle of its competitors shares short, which is 14.54M. Although the shares short % was not given for Novo Nordisk, Celgene had the lowest at 1.80%. 3) From (H- 1), observe short interest and # of days to cover values for two reporting dates immediately before and one reporting date immediately after earnings report. (1) Were there notable increase or decrease in the values, right before or right after earnings report? (2) Observe stock price chart and comment on how stock traded around those dates. The short interest value has been increasing until the recorded date on March 13, It was usually ranging from 10,000,000-13,000,000 for the past year however it got to over 14,000,000 on March 13, The stock price was generally rising until the earnings report date on January 29 th, ranging from $111- $124, but when the earnings report was released the stock prices slowly began to decline until February 23 rd where it got back up to $

28 Section (I) Stock Charts (Guidelines for I- 4 Have Been Updated) For (I- 1) (I- 3), the stock price charts should include (1) your stock, (2) 1 competitor, (3) sector ETF, and (4) SP500 (I- 1) A three months price chart (I- 2) A one year price chart 28

29 (I- 3) A five year price chart 1) (I- 1) (I- 3) Discuss what you observe from the above stock price charts. This should include comparing your stock to competitors, sector, and SP500 over the three different time horizons. When looking at the three- month chart, Celgene was outperformed by their competitor Novo Nordisk and the healthcare sector. However, when looking at the one year price chart Celgene outperformed their competitor, S&P 500 and the healthcare sector. In the 5- year horizon, Celgene faces more of a competition with their competitor Novo Nordisk, but Celgene eventually end up leading. The company seemed to have been outperformed until around 2013, when the stock prices began going on an upward trend until it reached the leading position where it remains today in We are expecting Celgene to remain in an upward trend and have a consistent performance. 2) Other observations worth noting? N/A (I- 4) Technical Indicators ( Moving Average and Relative Strength Index from Short- term moving average and relative strength index indicators 29

30 Long- term moving average and relative strength index indicators 1) Discuss your findings from these sets of technical indicators. Compare your findings here to findings from fundamental analysis. Are findings from technical analysis supportive of your other findings? When looking at the 1 year chart, you can see a bullish trend in both the 10 day SMA and 50 day SMA, however the 10 day exceeded the 50 day. These results are indicating that the 30

31 company s stock has been bullish. When looking at the ten- year chart the 50 day SMA exceeds the 200 day SMA, but both have been on an upward trend. We feel that this stock will continue to have a positive performance because the past performances seem to have a consistent upward trend. 31

32 References Morningstar Yahoo Finance CNBC Google Finance Celgene (10- K) and (8- K) 2014 Quarter 4 Earnings Report 32