Celgene (NASDAQ:CELG) stock appreciated about 21% as of writing, as there was news that Bristol-Myers Squibb (NYSE:BMY) was acquiring Celgene for about $74 billion.
What Should Celgene Shareholders Do?
The news actually pushed Celgene stock meaningfully closer to its fair value, according to Thomson Reuters‘ mean 12-month target of $105. As of writing, Celgene is trading at $80.84. So, it doesn’t make sense to sell at the current levels, as there’s still about $14 (nearly 17%) of upside according to BMY’s current stock price.
At the same time, there’s a risk that if the deal breaks down, Celgene stock could come tumbling down.
If you bought Celgene in the $60s in December, you’re now sitting on some nice gains, and no one will blame you for securing and booking the profit.
For those who have a longer-term investment horizon, it may be worthwhile to wait it out. If BMY combines with Celgene, it could be a good thing, as it merges the quality biotech and pharma companies to make a more diversified firm. Moreover, BMY also offers a stable dividend to give immediate returns.
BMY is getting a good deal here. It’s paying a low multiple for Celgene, which has a higher margin and higher growth rate – BMY’s recent net margin and consensus estimated growth rate are 6.5% and 11-12.8%, respectively, while Celgene’s are 19.6% and 19.5-19.8%. BMY also has a stronger balance sheet than Celgene. Assuming the deal goes through, I think BMY is a better buy here.
The above is an excerpt. Read the full article here: What Should Celgene Shareholders Do In Light Of The Bristol-Myers Squibb Deal?
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Disclosure: At the time of writing, the author owns CELG.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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