Is there Upside for JUNO after today's run

I have to admit that valuing a take over target is out of my league. I picked KITE over JUNO and BLUE because of the advanced stage of KITE’s solution and the quality of the company. Once my KITE trade settled I planned to use part of the money to establish a position in JUNO. After today’s run I am concerned that there may not be that much more upside. My traditional methods of valuing a stock do not work in this environment. Members of this board seem much more adept in this area. therefore I am looking for input.

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I think JUNO is worth 46.23/share.

Just kidding. Honestly, one thing about valuation is that it’s relative. How much would one pay for a similar company? Hard to know what similar is, but to take a rough measure, JUNO and BLUE are both under 5B and KITE sold for, what, 10B? So depending on just how similar they are, you could expect some more upside.

But then again, it’s all relative. Just remember that what happened today has no bearing on what happens tomorrow.

Bear

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JUNO has had quite a run since Friday. I bought my first shares on Friday at $30.50 and then bought more on Monday between $35.60 and $36.60. The run-up since Friday (based on today’s after hours price of $45.80) was 50%. This is actually more of a gain than the premium that GILD paid for KITE (28% premium)!!

However, KITE has had quite a run-up in the past year. 52 week low for KITE has $39.52.

JUNO, on the other hand, has a 52 week low of $17.52 but it has a previous 52 week high of around $33 (before this week’s run up).

KITE was taken out at a market cap of $10B but the acquisition price was listed at $11.9B (maybe part of the difference is that cash that KITE had???).

JUNO currently has a market cap of $4.7B which is less than half of KITE’s market cap that the acquisition price.

I previously stated my reasons for buying JUNO:

here: http://discussion.fool.com/immuno-oncology-companies-32819652.as…

and here: http://discussion.fool.com/i-sold-all-my-kite-shares-yesterday-i…

My position size is currently 4.3% but I only invested about 3% (yes, it’s gone up that much in a matter of 2 days). I don’t plan on adding any shares although I may consider options purchases. I don’t plan on selling any shares. JUNO is currently recruiting for their clinical trial and I think we may see interim results at ASH in early December. Those results could move the shares.

Another thing to consider is that the trading volume today was extremely heavily: about 9 times the average volume of 2 million shares per day. I suspect 2 things may be going one here.

  1. KITE shareholders may be redeploying capital from KITE to JUNO. I presume that many investors want to stay invested in the IO space and in CAR-T specifically. With KITE gone and KITE inside GILD unlikely to move the needle, investors may have moved into JUNO. Interestingly, BLUE traded lower today after being up a bunch yesterday. In constrast, JUNO extended its run.

  2. With close to 18 million shares trading and the price increasing significantly there was a lot of demand for the shares. At $45 per share, $810M was traded. I suspect that a lot of this was institutional buying. If so, these investors can’t easily unload and will likely stay in the shares for a while.

Some other things to consider:

a) Trump tax plan if passed with overseas cash repatriation will give US-based big biopharma companies to buy US-based acquisition targets for less than they can now.

b) Competition for the remaining CAR-T companies can be more intense with KITE gone.

c) KITE can provide a benchmark of $10B when companies consider whether they want to buy JUNO or BLUE.

d) CELG’s collaboration may provide some disincentive for other companies to acquire JUNO or BLUE. I will try to find out more about this.

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If the board was an entity, it would hire expert opinion. The alternatives are two, a) a great deal of research, or b) find a highly-rated fund specialising in the narrow area and investigate the top holdings which were new or increased in the last quarter reported.

Re previous post, delete ‘top’. The top holdings might not be interesting to the board, while KITE might have been spotted as a new holding in some earlier quarter near or at the bottom, attracting the investor’s interest.

Just my two cents on this…

There is way too much hype flooding into the JUNO stock right now. Nothing at the company has changed in the past couple days other than we know KITE is likely to be purchased. Give this stock a few weeks to calm down I bet you will be able to get an entry price for under $35 a share. This kind of over exuberance happens all the time. And if it does not go down… no problem, you missed this one, nothing lost just move on to the next opportunity.

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my two cents; never buy a stock that you think will be a take out candidate.

Sox

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my two cents; never buy a stock that you think will be a take out candidate.

Yep unless I think it will do great even if it doesn’t get taken out.

never buy a stock that you think will be a take out candidate.

This might be better phrased: never buy a stock because you think it will a take out candidate. Evaluate it on it’s own business merits.

‘Never buy a stock that you think will be a take out candidate.’

The responses are far too kind. Surely this is bad and illogical advice. In fact I would go as far as to say that I would prefer it if every small or mid-cap I bought was a takeout candidate! That is not so only because in these times it can be worth paying very full value for very high growth; multiple-expansion can be sacrificed.

But if I am able to buy what seems to me to be a very high quality company believing the market has under-estimated its value, then it follows my judgement (and investment) is gratifyingly confirmed and endorsed if it is itself subsequently bought out for a higher price.

(It may or may not be a sub-optimal result for me, being a one-off, if superb annualised return instead of the years of compounded growth which might be much better but that is a different point. In the case of KITE, I am delighted to be bought out, knowing about as much about Car-T as you could put on a postage stamp! Remember them?)

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