Amgen Inc. (AMGN) Quarterly Valuation – March 2014

500px-Amgen.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Amgen Inc. fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Amgen Inc. is a global biotechnology pioneer that discovers, develops, manufactures and delivers human therapeutics. Its medicines help millions of patients in the fight against cancer, kidney disease, rheumatoid arthritis (RA), bone disease, and other serious illnesses. On December 10, 2012, the Company acquired all of the outstanding stock of deCODE Genetics (deCODE). In July 5, 2012, the Company acquired KAI Pharmaceuticals, a privately held company based in South San Francisco. In September 2013, Swedish Orphan Biovitrum AB (publ) (Sobi) announced that they have acquired the full rights to develop and commercialize Kineret (anakinra) from Amgen Inc for all therapeutic indications.

AMGN Chart

AMGN data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $123.07
MG Value $126.93
MG Opinion Fairly Valued
Value Based on 3% Growth $78.77
Value Based on 0% Growth $46.18
Market Implied Growth Rate 7.08%
Net Current Asset Value (NCAV) -$22.08
PEmg 22.65
Current Ratio 3.44
PB Ratio 4.20

Balance Sheet – 12/31/2013

Current Assets $27,367,000,000
Current Liabilities $7,947,000,000
Total Debt $29,623,000,000
Total Assets $66,125,000,000
Intangible Assets $28,230,000,000
Total Liabilities $44,029,000,000
Outstanding Shares 754,600,000

Earnings Per Share

2013 $6.64
2012 $5.52
2011 $4.04
2010 $4.79
2009 $4.51
2008 $3.90
2007 $2.82
2006 $2.48
2005 $2.92
2004 $1.79
2003 $1.68
2002 -$1.21

Earnings Per Share – ModernGraham

2013 $5.43
2012 $4.74
2011 $4.23
2010 $4.12
2009 $3.63
2008 $3.06

Dividend History

AMGN Dividend Chart

AMGN Dividend data by YCharts


Amgen is suitable for the Enterprising Investor but not the Defensive Investor, having failed the Defensive Investor’s requirement of dividend payments for over ten years, as well as having high PEmg and PB ratios.  The company only fails the Enterprising Investor’s requirement regarding the level of debt relative to the company’s current assets, but that is not enough to turn away the Enterprising Investor.  As a result, Enterprising Investors should feel comfortable proceeding with further research into the company as well as other opportunities, including a review of 5 Undervalued Companies for the Defensive Investor, and a review of ModernGraham’s valuation of Baxter International (BAX).  From a valuation perspective, the company appears to be fairly valued at the current time, after growing EPSmg from $3.63 in 2009 to $5.43 in 2013.  This level of demonstrated growth supports the market’s current implied estimate of 7.08% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is within a margin of safety relative to the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Amgen Inc. (AMGN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Amgen Inc. (AMGN) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.





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