Shares of Celgene (CELG) are off more than 15% since issuing profit warning this morning.  They are primarily involved in the treatment of cancer and immune-inflammatory diseases, and judging by sales growth in the last few years, some of their therapies have started to gain traction.  The company says that they expect revenue to be around $600 million in quarter versus estimates of $647.1 million.  Furthermore, the company guided EPS $2.05 to $2.15 for the full year, on the low end of the prior range and well below the expected EPS of $2.17.

“We’ve got Apollo education company falling and Celgene at a 52-week low. The company being downgraded left and right. Citigroup, Barclays, Lazard’s, the list goes on and on the and the company fell short of expectations.” Fox Business Network, Wednesday

The shares have experienced heavy dumping of call options today, according to Dow Jones as traders are betting that the stock will stay below $40 for the near future.  Clearly, the company is experiencing some difficulty in this environment and a total of 5 analysts lowered their price targets or ratings on Celgene this morning and possibly more are coming.  This profit warning will likely not trigger a downgrade at Ockham because we recently placed a Fairly Valued valuation on CELG from our prior Undervalued stance earlier in March. 

At this point, the stock is probably not in danger of an Overvalued valuation because after all the company is still a growth story.  Earnings, even if they come in at the low end of the new guidance of $2.05, would still have grown more than 30% over 2008’s results.  Furthermore, revenue has nearly doubled in just two years, including a gain of 38.5% in the last year.  We think that the stock is appropriately valued for the fundamentals at this point, and we would start to become bullish again on Celgene if it drops below $32 per share.  Having said that, that would be another 14% decline past their 52-week low set today, so we are not necessarily expecting the stock to sink that low.