Street Fight: Argus sees Celgene risk, but Bernstein thinks sentiment at bottom

In a research note this morning, Bernstein analyst Aaron Gal upgraded Celgene to Outperform on valuation, saying the stock's current level reflects the worst-case outcome on Revlimid generic entry. Voicing concern over potential setbacks in Celgene's product pipeline as well as its over-reliance on Revlimid, his peer at Argus downgraded the stock to Hold. BERNSTEIN SAYS BUY CELGENE: This morning, Bernstein's Gal upgraded Celgene to Outperform from Market Perform on valuation, while lowering his price target on the stock to $102 from $121. The analyst argued that the current valuation reflects the worst-case outcome for entry of a generic version of Revlimid, which would be April 2020. However, the analyst pointed out that this outcome is far from certain, as issued patents are "presumed valid" and the GRx could make more by settling than launching. Moreover, the analyst believes that the four approvals of material products in the next 24 months, namely Luspatercept, bb2121, JACR17 and Ozanimod, may potentially change valuation and market sentiment. Gal also sees potential for governance change or a takeover if the stock's current depressed valuation persists or goes lower. Overall, the analyst told investors that he sees a positive risk-reward at these levels. ARGUS MOVING TO THE SIDELINES: Not as bullish, Argus analyst David Toung downgraded Celgene to Hold from Buy, saying he is increasingly more concerned about potential setbacks in its product pipeline as well as the company's over-reliance on Revlimid, which is about 65% of its total revenue. The analyst also noted that the company continues to fight potential generic competitors despite settling one legal challenge to Revlimid, and warned that any adverse legal decision could produce greater volatility in the stock. Additionally, he has lowered his financial strength rating on Celgene to Medium-Low as the company has taken on more debt to fund acquisitions. Overall, Toung argued that the risk/reward balance for the stock has tilted to greater risk. PRICE ACTION: In morning trading, Celgene has risen fractionally to $77.11 per share.