Amgen Inc. Analysis – September 2015 Update $AMGN
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Most Undervalued Companies for the Defensive Investor – AugustÂ 2015.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Amgen Inc. (AMGN)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Amgen Inc. (Amgen) is a biotechnology company. The Company is engaged in discovering, developing, manufacturing and delivering human therapeutics. The Company’s sales and marketing forces are located in the United States and Europe. In the United States, it sells its products to pharmaceutical wholesale distributors. The Company also markets certain products directly to consumers through direct-to-consumer print and television advertising, as well as through the Internet. Outside the United States, the Company sells its products to healthcare providers and/or pharmaceutical wholesale distributors. The Company’s products include Neulasta (pegfilgrastim)/NEUPOGEN (filgrastim), Enbrel (etanercept), XGEVA/Prolia (denosumab), ESAs (erythropoiesis-stimulating agents), Sensipar/Mimpara (cinacalcet), Kyprolis and Evolocumab, among others.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of AMGN – September 2015
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$110,697,004,734||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||5.48||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||140.33%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||20.73||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||4.08||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||5.48||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||1.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||9.95%|
|MG Value based on 3% Growth||$102.13|
|MG Value based on 0% Growth||$59.87|
|Market Implied Growth Rate||6.11%|
|% of Intrinsic Value||72.97%|
Amgen Inc.Â qualifies for the Enterprising Investor but not the more conservative Defensive Investor. Â The Defensive Investor is concerned with the short dividend history and high PEmg and PB ratios. Â The Enterprising Investor has no initial concerns.Â As a result, all Enterprising InvestorsÂ following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation,Â the company appears to be undervalued after growingÂ itsÂ EPSmg (normalized earnings) from $4.23 in 2011 to an estimated $7.04 for 2015. Â This level of demonstrated earnings growth outpacesÂ the market’s implied estimate of 6.11% annual earnings growth over the next 7-10 years.Â As a result, the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value aboveÂ the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Amgen Inc. (AMGN)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$7.80|
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Total Current Assets||$37,736,000,000|
|Total Current Liabilities||$6,891,000,000|
|Shares Outstanding (Diluted Average)||768,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$8.77|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$7.04|
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
4 thoughts on “Amgen Inc. Analysis – September 2015 Update $AMGN”
I like Amgen stock. Two days ago, I sold some Put options for $2.54/share immediate income at the Oct 16th, 2015 options expiration that obligates me to buy AMGN shares at $140 if the stock is below $140 then. Needless to say, I like your $200 intrinsic value estimate. Other one-year target prices I’ve seen include S&P=$202, Argus=$194, and Morningstar=$194.
My broker shows $8.59 for actual ’14 EPS and estimate of $9.76 for ’15. What do your numbers of $6.70 and $8.77 respectively represent?
The EPS figures I use are the diluted EPS figures found on GuruFocus. I also just checked the 10-K, which shows $6.70 for the diluted EPS for 2014 as well. I’m not sure where your broker’s numbers come from.
Thanks Ben. Your numbers are the GAAP earnings and the ones I referenced are the non-GAAP earnings. Here’s an article with a good explanation of the difference: http://www.businessinsider.com/gaap-vs-non-gaap-earnings-eps-2013-12