At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
(Nasdaq: CELG) shares have lost 6% of their worth over the past 27-odd hours, declining from a pre-earnings close of $56.19 to just $52-and-change as I type these words. But wait -- isn't this the company that was supposed to be "the next Genentech?" Isn't Revlimid the miracle cancer-cure, the drug that (with a little help from Biogen Idec (Nasdaq: BIIB) and Roche) is supposed to stop lymphoma in its tracks?

Well, maybe it is. But a consensus seems to be growing on Wall Street that, whatever Celgene's prospects, the stock's price has gotten a little ahead of itself. Yesterday, as you may have heard, Celgene reported fourth-quarter earnings that showed a rise in revenue -- but a 16% decline in profit. Revlimid sales are still going strong, true, but according to Jefferies, "survival maturity of Revlimid maintenance trials" and "resolution of the Revlimid patent overhang" are both essential elements if Celgene shares are to have any chance of going higher.

Mind you, Jefferies still likes the stock, and rates it a "buy." Worries aside, the only negative move the analyst took in reaction to yesterday's news was to nudge its price target lower -- and at $65, Jefferies is still predicting a 24% profit for buyers at today's price. Then again, while a prolific picker of biotech stocks, Jefferies makes more than its fair share of bad calls:


Jefferies Rating

CAPS Rating 
(out of 5)

Jefferies' Picks Lagging 
S&P By:

Amgen (Nasdaq: AMGN)



16 points

Genzyme (Nasdaq: GENZ)



59 points

Somaxon (Nasdaq: SOMX)



75 points

Overall, 56 of Jefferies biotech recommendations made over the past five years have underperformed the market. So the fact that the analyst is still bullish on Celgene at all might not be as good news as it appears.

And that's not all
This morning, veteran biotech analyst Morgan Joseph echoed Jefferies' concern over Celgene -- but this time, without the endorsement of a renewed buy rating. Noting that "the key reason Celgene has been able to sustain a very good multiple on the stock is because of strong growth from Revlimid," Morgan Joseph instead chose to downgrade the stock to "hold."

Why? Here's the problem in a nutshell: "Revlimid accounts for around 68% of [Celgene's] sales," but Revlimid sales growth is slowing. "Based on current growth patterns (which are also consistent with management's current guidance)," Morgan Joseph predicts continued deceleration in Revlimid sales throughout 2011, with the result that Celgene's sales growth from this single, crucial drug will "drop to the teens" by year-end.

Buy the numbers?
Now admittedly, when it comes to picking biotech winners, Morgan Joseph is nearly as bad an analyst as Jefferies, scoring only 50% accuracy in the industry. But in this particular case, I believe Morgan Joseph has the facts on its side.

Why? Well, crunch some numbers with me and I think you'll see: Right now, Celgene sells for 26 times trailing earnings. If the company manages to match consensus expectations for 26% long-term profits growth, that should mean the stock's priced pretty much right at today's valuation.

But if Morgan Joseph is right about Revlimid sales growth dropping "into the teens," and if Revlimid sales make up more than two-thirds of Celgene's overall sales, then what are the chances that the remaining less-than-a-third of Celgene's business will make up the difference, and grow so fast as to drive Celgene's growth all the way up from "the teens" and into "the twenties?" Personally, I'm not optimistic.

Foolish final thought
Now, does all this mean Celgene will turn out to be a lousy investment, its stock doomed to fall? Hardly.

Like I said, neither Jefferies nor Morgan Joseph are exactly setting the world on fire with the accuracy of their stock picks. It's worth pointing out that, even if Celgene's growth slows enough to deny the stock a "1.0 PEG ratio," there are plenty of other biotech and pharma stocks out there that command much higher valuations, and do just fine. Slow growth at Merck (NYSE: MRK) has that one trading for 2x its PEG, for example. Crunch the numbers at even-slower-grower Pfizer (NYSE: PFE), and you'll be astounded to learn that this pharmaceutical giant sells for 10 times its PEG.

If that's the case, it's entirely possible that Celgene's stock will outperform the market even if Revlimid sales slow, and Celgene's overall growth rate misses the expected 26% pace in consequence. Whether you want to overpay for Celgene stock, though, just because Merck and Pfizer investors are doing so, is a personal choice.

Pfizer is a Motley Fool Inside Value selection, but Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 664 out of more than 170,000 members. The Motley Fool has a disclosure policy.

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