Amgen Inc (AMGN, Financial) witnessed a daily gain of 5.45%, with an Earnings Per Share (EPS) of 14.83. The question that arises is whether the stock is fairly valued. This article aims to answer this question through a detailed valuation analysis. We encourage readers to delve into the following analysis for a comprehensive understanding.
Company Overview
Amgen Inc (AMGN, Financial) is a leading player in biotechnology-based human therapeutics, with a focus on renal disease and cancer supportive-care products. The company's flagship drugs include Epogen, Aranesp, Neupogen, Neulasta, Enbrel, and Otezla. Amgen's current stock price is $243.28, and it has a market cap of $130.1 billion. The company's estimated fair value (GF Value) stands at $262.84, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line signifies the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Amgen (AMGN, Financial) is estimated to be fairly valued. The stock is trading close to its GF Value of $262.84, suggesting that the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding to buy shares. Amgen has a cash-to-debt ratio of 0.51, ranking worse than 60.48% of companies in the Drug Manufacturers industry. This suggests that Amgen's financial strength is poor.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Amgen has been profitable over the past 10 years, with an operating margin of 34.31%, ranking better than 96.72% of companies in the Drug Manufacturers industry. This indicates strong profitability.
The average annual revenue growth of Amgen is 8.2%, ranking better than 57.31% of companies in the Drug Manufacturers industry. However, the 3-year average EBITDA growth is 2.7%, which ranks worse than 62.46% of companies in the same industry, indicating slower growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) is another way to assess its profitability. For the past 12 months, Amgen's ROIC is 18.2, and its WACC is 6.98, indicating a favorable balance.
Conclusion
In conclusion, Amgen (AMGN, Financial) stock is estimated to be fairly valued. Despite the company's poor financial condition, its profitability is strong. However, its growth ranks worse than the majority of companies in the Drug Manufacturers industry. To learn more about Amgen stock, you can check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
