This Just In: Upgrades and Downgrades – Dendreon Corporation (DNDN) and More

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.” Today, 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.

Maxim Integrated Products Inc. (NASDAQ:MXIM) ditches Dendreon Corporation (NASDAQ:DNDN)
Jennerex. Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX). Amgen, Inc. (NASDAQ:AMGN). Bristol Myers Squibb Co. (NYSE:BMY). The field of companies racing to develop virus-based cancer cures just keeps growing and growing, as biotechs big and small try to find the best way to train the body’s immune system to fight cancer. But according to one analyst at least, one of the early leaders of this movement toward such “oncolytic immunotherapies” is starting to fall behind.

Dendreon Corporation (NASDAQ:DNDN)This morning, analysts at Maxim Group announced they’re ready to throw in the towel once and for all on Dendreon Corporation, maker of the once-revolutionary Provenge vaccine against prostate cancer. They’re downgrading all the way to “sell” and assigning a $4 price target to the stock, which currently fetches more than $6 — suggesting that the stock could lose as much as 36% of its value over the next 12 months.

But are they right?

One word: Yes
Admittedly, Maxim’s advice appears to fly in the face of the recent upgrade that rival i-banker Cantor Fitzgerald gave Dendreon last month. Arguing that despite competition from other oncolytic researchers — such as the others named above, and even more closely from Johnson & Johnson (NYSE:JNJ)‘s Zytiga — “expectations for Provenge are too low,” Cantor upped its target price on Dendreon to $7 last month, even as it held its rating at “neutral.”

And yet, it seems to me that Maxim has the better of this argument. Remember that Dendreon itself publicly declared it needs to make $500 million in annual sales in order to just break even on its business — much less earn real profit. Problem is, Dendreon was originally expected to approach this goal in 2013. Today, though, most analysts agree that Dendreon’s unlikely to book more than $363 million in revenue this year, and won’t pass the $500 million mark before 2016. In the fast-moving world of biotech, that’s an awful lot of breathing room that Dendreon has given its competitors.

Meanwhile, Dendreon itself remains incapable of earning a profit. It’s cut its rate of cash burn substantially, granted, yet still ran $118 million negative on free cash flow over the past 12 months. Considering that Dendreon has already amassed nearly $200 million more debt than cash on its balance sheet, that’s an uncomfortable position for the company to be in. In short, Maxim’s right — and Dendreon’s a sell.

With friends like these…
At the same time, Dendreon’s peers in the search for a cancer cure just get stronger and stronger. Onyx, arguably the weakest of the bunch (Dendreon excepted), is now profitable on a trailing-12-month basis. While expected to post a loss this year, analysts polled by S&P Capital IQ believe Onyx will turn a small profit in 2014, then grow rapidly in profitability from there on out. It’s also cash-rich and free cash flow positive in most years.

Amgen looks even better. Vastly profitable, the stock costs only 15.4 times earnings today, versus “infinity-times-earnings” for unprofitable Dendreon. Its debt levels are minimal for a biotech giant of its size, and Amgen throws off a ton of free cash every year (distributing some of it in a tidy 2.2% dividend yield).

As for giants Bristol-Myers and Johnson & Johnson, it probably goes without saying that both are profitable, and sizable producers of free cash and earnings alike. They also pay better dividends than anyone else mentioned above. Granted, at 20 times earnings (J&J) and 31 times (B-M), neither of these stocks looks particularly cheap. When considered in light of their anemic, mid-single-digit earnings growth rates, I’d be hard pressed to recommend investing in either one.

Fortunately for their shareholders, however, and unfortunately for Dendreon, a competitor’s stock doesn’t have to look attractive in order for said competitor to easily crush its rivals. That’s the fate Dendreon faces if it doesn’t get its act together soon, and begin delivering on its promises about Provenge.

The article This Just In: Upgrades and Downgrades originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Dendreon and Johnson & Johnson.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!