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.

blog comments powered by Disqus
Insider Monkey Headlines
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 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

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!