Pharmaceuticals Stocks

Amgen Inc Valuation – March 2017 $AMGN

Benjamin 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 or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  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 stock analysis showing a specific look at how Amgen Inc (AMGN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Amgen Inc. is a biotechnology company. The Company discovers, develops, manufactures and delivers various human therapeutics. It operates in human therapeutics segment. Its marketed products portfolio includes Neulasta (pegfilgrastim); erythropoiesis-stimulating agents (ESAs), such as Aranesp (darbepoetin alfa) and EPOGEN (epoetin alfa); Sensipar/Mimpara (cinacalcet); XGEVA (denosumab); Prolia (denosumab); NEUPOGEN (filgrastim), and other marketed products, such as KYPROLIS (carfilzomib), Vectibix (panitumumab), Nplate (romiplostim), Repatha (evolocumab), BLINCYTO (blinatumomab), IMLYGIC (talimogene laherparepvec) and Corlanor (ivabradine). It focuses on human therapeutics for the treatment of serious illness in the areas of oncology/hematology, cardiovascular disease and neuroscience. Its product candidates in Phase III include Erenumab for episodic migraine, Aranesp for myelodysplastic syndromes, BLINCYTO for acute lymphoblastic leukemia and IMLYGIC for metastatic melanoma.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AMGN – March 2017

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 $122,480,021,905 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.11 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 137.95% Pass
6. Moderate PEmg Ratio PEmg < 20 17.18 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.26 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 4.11 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.87 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

EPSmg $9.81
MG Growth Estimate 12.09%
MG Value $320.69
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $142.27
MG Value based on 0% Growth $83.40
Market Implied Growth Rate 4.34%
Current Price $168.61
% of Intrinsic Value 52.58%

Amgen, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.43 in 2013 to an estimated $9.81 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.34% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Amgen, Inc. revealed the company was trading above its Graham Number of $103.67. The company pays a dividend of $4 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.18, which was below the industry average of 28.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.31.

Amgen, Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.31
Graham Number $103.67
PEmg 17.18
Current Ratio 4.11
PB Ratio 4.26
Current Dividend $4.00
Dividend Yield 2.37%
Number of Consecutive Years of Dividend Growth 7

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Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $46,010,000,000
Total Current Liabilities $11,204,000,000
Long-Term Debt $30,193,000,000
Total Assets $77,626,000,000
Intangible Assets $25,030,000,000
Total Liabilities $47,751,000,000
Shares Outstanding (Diluted Average) 754,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.80
Dec2016 $10.24
Dec2015 $9.06
Dec2014 $6.70
Dec2013 $6.64
Dec2012 $5.52
Dec2011 $4.04
Dec2010 $4.79
Dec2009 $4.51
Dec2008 $3.77
Dec2007 $2.82
Dec2006 $2.48
Dec2005 $2.93
Dec2004 $1.81
Dec2003 $1.69
Dec2002 -$1.21
Dec2001 $1.03
Dec2000 $1.05
Dec1999 $1.02
Dec1998 $0.82
Dec1997 $0.59

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.81
Dec2016 $8.42
Dec2015 $7.14
Dec2014 $5.97
Dec2013 $5.43
Dec2012 $4.73
Dec2011 $4.22
Dec2010 $4.09
Dec2009 $3.60
Dec2008 $3.02
Dec2007 $2.54
Dec2006 $2.11
Dec2005 $1.70
Dec2004 $1.02
Dec2003 $0.65
Dec2002 $0.27
Dec2001 $0.98

Recommended Reading:

Other ModernGraham posts about the company

Amgen Inc Valuation – February 2016 $AMGN
5 Undervalued Companies with a Low Beta – October 2015
10 Best Stocks For Value Investors This Week – 9/26/15
Amgen Inc. Analysis – September 2015 Update $AMGN
The Best Companies of the Pharmaceuticals Industry – August 2015

Other ModernGraham posts about related companies

Ligand Pharmaceuticals Inc Valuation – Initial Coverage $LGND
Pfizer Inc Valuation – March 2017 $PFE
Supernus Pharmaceuticals Inc Valuation – Initial Coverage $SUPN
Lannett Company Inc Valuation – Initial Coverage $LCI
Spectrum Pharmaceuticals Inc Valuation – Initial Coverage $SPPI
Abbott Laboratories Valuation – January 2017 $ABT
Johnson & Johnson Valuation – January 2017 $JNJ
Allergan plc Valuation – January 2017 $AGN
Impax Laboratories Inc – Initial Coverage $IPXL
Alexion Pharmaceuticals Inc Valuation – December 2016 $ALXN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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