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." Here, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
What do you do when one of the best stockpickers climbs up on a soapbox, and tells you to sell one of the hottest biotech stocks on the planet? Personally, I listen up -- and today you can clearly hear Credit Suisse's shout-out against Dendreon
And boy, is it ever bad. Making a bearish call pre-earnings, the analyst warned that expectations for Dendreon's "Provenge" prostate cancer drug were set so high they were bound to "disappoint investors." Within mere hours, that's exactly what happened. Dendreon reported a $0.77 per-share loss, and $28.1 million in sales in the first quarter. The loss was better than the one Dendreon reported last year, but the Provenge sales fell significantly short of the $29 million that Wall Street had been expecting. Result: Dendreon's down 5% today.
It gets worse. Perhaps hedging its bets against an "adverse" reaction to Dendreon's news, Credit Suisse admitted that Provenge could enjoy "near-term upside ... as manufacturing rolls out." Longer term, however, Credit Suisse warns that "especially 2013+ ... Provenge's commercial potential will not live up to the Street's expectations."
Foolish minds think alike
Credit Suisse may be the only professional analyst out there sounding the alarm bell on Dendreon, but it's not the only investor with reservations about the stock. In fact, my Foolish colleague Brian Orelli pointed out just yesterday that there are good reasons to worry about Dendreon's future. For one thing, as good a drug as Provenge appears to be, it's far from the only horse in this race.
Fact is, there's a whole slew of competing prostate cancer drugs aiming to jostle it out of the market. Hospira
In short, while Provenge has certainly got momentum, the $15 million in monthly sales it booked in April only work out to about $180 million annualized. And even if sales accelerate in line with Dendreon's planned manufacturing expansion, full-year revenue at the company should max out at $400 million. That's a big number, but a far cry from the $3.1 billion in annual sales that Collins Stewart predicted Dendreon will make in 2020. And now Credit Suisse is saying it may never get there. Rather, the banker sees the drug peaking earlier, and lower, at $1.3 billion in annual sales in 2018. Are they right?
Let's go to the tape
I'll give you a definite "maybe" on that question. On the one hand, Credit Suisse has a stellar record picking plain vanilla pharmaceutical stocks. Our CAPS stats have the analyst getting 53% of its picks right in that industry, and outperforming the S&P 500 by a combined 651 percentage points across 25 picks. Not too shabby. On the other hand, Credit Suisse's record in the dodgier biotechnology industry is iffier. Here, Credit Suisse is still beating the market overall, but getting only 42% of its picks right.
But here's the good news: It doesn't really matter whether Credit Suisse is exactly right on Dendreon, whether it's picked the right target price, or whether it's calculated 2018 Provenge sales down to the correct penny.
All you really need to know about the stock is this: Whether you value Dendreon at 130 times last year's proven sales, at nearly seven times the sales analysts expect it to make next year, or at 135 times next year's estimated earnings, any way you look at it, the stock's clearly expensive. In fact, at a $6 billion market cap, Dendreon costs close to twice the most optimistic estimates of what its sales might be almost ten years from now. Meanwhile, profitable pharmaceutical concerns like Pfizer
A wise man once pointed out that "a bird in the hand is worth two in the bush." So here's the real choice for investors: You can dine on roast turkey today, or wander in the wilderness for nine more years, hoping Credit Suisse is wrong, and that Dendreon does indeed grow into the price its shares demand today.
I know what I'd do -- but the choice is yours.
Fool contributor Rich Smith does not own (nor is he short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 520 out of more than 170,000 members. The Motley Fool has a disclosure policy.
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