Amgen (AMGN -0.39%) has been the hands-down winner over Celgene (CELG) in terms of stock performance over the last year. It's the same story for revenue generated. Celgene beat Amgen in earnings, but only because of a technicality: Amgen incurred a big one-time tax hit in 2017.
So, is Amgen the better stock for investors to buy now? The warning found on mutual fund disclosures that past performance doesn't guarantee future results also applies to individual stocks. Here's how Amgen and Celgene compare in three key areas -- growth, value, and income.
Wall Street analysts think Celgene will grow earnings by nearly 20% annually over the next five years, with Amgen's earnings increasing by less than 5% annually during the period. We'll find out over time how accurate their projections are, but I definitely agree that Celgene's growth story looks much more compelling than Amgen's does.
Celgene's top-selling Revlimid continues to enjoy solid sales momentum. The only potential hurdle is the threat of generic rivals reaching the market earlier than expected. Celgene is in the middle of a legal battle with several generic-drug makers. However, I suspect the company will reach settlements with these potential rivals. That's what has already happened with Natco Pharma, which will launch a generic version of Revlimid in limited volumes beginning in March 2022.
Other drugs in Celgene's lineup are also performing very well. Pomalyst and Otzla both generated year-over-year sales growth of 23% or more in 2017. Although Celgene fumbled in its FDA submission of ozanimod in treating multiple sclerosis, the drug should still win approval and become another blockbuster in the biotech's arsenal. In addition, the company claims several other promising candidates in its pipeline with the potential to reach peak annual sales of at least $1 billion.
Amgen, on the other hand, faces major headwinds for its three biggest-selling drugs, Enbrel, Neulasta, and Aranesp, due to increased competition. The company does have a few bright spots, though. Sales for osteoporosis drug Prolia continue to climb nicely. Cholesterol drug Repatha and multiple myeloma drug Kyprolis should pick up steam.
There are also some potential new drugs on the way that could make significant contributions to Amgen's top line. Aimovig ranks at the top of the list. The migraine drug could win FDA approval within the next few weeks. Novartis will co-market Aimovig with Amgen if the drug is approved.
Still, though, Amgen doesn't appear to have the growth prospects Celgene does. Celgene has a stronger current lineup and more potential blockbusters in its pipeline.
Which stock has the more attractive valuation? Celgene wins again.
Celgene stock currently trades at less than nine times expected earnings. Amgen's forward earnings multiple is close to 12.5. Factoring in growth makes Celgene look like even more of a bargain. The biotech's price-to-earnings-to-growth (PEG) ratio stands at a low 0.52, compared to Amgen's PEG ratio of 2.76.
Even if you distrust the earnings estimates used in forward-looking multiples, Celgene still claims a lower valuation than Amgen. While Amgen's trailing-12-month price-to-earnings (P/E) ratio is over 65, Celgene's trailing earnings multiple is less than 25.
There's no contest when it comes to generating income for investors, though. Amgen pays a dividend, but Celgene doesn't.
As an added bonus, Amgen's dividend looks really good. The yield currently stands above 3%. Amgen has increased its dividend by more than 370% since initiating the program in 2011. The biotech also should be in great shape to keep those dividend hikes coming, since it uses only 32% of free cash flow to fund the dividend program.
In my view, Celgene's strong growth prospects and bargain-bin valuation make it the better pick overall. I think the sell-off over the last seven months resulting from the company's missteps has been overblown.
There is one wild card that could change the dynamics, though. Amgen reported a cash stockpile of $41.7 billion at the end of 2017, including cash, cash equivalents, and marketable securities. CEO Bob Bradway stated earlier this year that Amgen is interested in making acquisitions. A few smart deals could give Amgen what it needs to return to solid growth.