Amgen Inc (AMGN, Financial) has recently been on a positive trajectory, with a daily gain of 3.17% and a 3-month increase of 6.66%. Furthermore, it boasts a solid Earnings Per Share (EPS) (EPS) of 14.83. But is the stock fairly valued? This article aims to answer this question through a comprehensive valuation analysis. Read on to gain valuable insights into Amgen's financial performance and intrinsic value.
Company Overview
Amgen is a leading biotechnology company specializing in human therapeutics, with a strong background in renal disease and cancer supportive-care products. Its flagship drugs include Epogen, Aranesp, Neupogen, Neulasta, Enbrel, and Otezla. The company's current stock price is $251, which is slightly below its GuruFocus Value (GF Value) of $262.84, indicating it is fairly valued. This provides a solid foundation for a deeper exploration of the company's value, blending essential company details with financial assessment.
The GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. It provides an overview of the fair value at which the stock should ideally be traded. 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. With a current price of $251 per share and a market cap of $134.30 billion, Amgen's stock is estimated to be trading at its fair value. As Amgen is fairly valued, 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, it's crucial to review a company's financial strength before deciding whether to buy shares. Amgen has a cash-to-debt ratio of 0.56, which ranks worse than 58.63% of companies in the Drug Manufacturers industry. Based on this, GuruFocus ranks Amgen's financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Amgen has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $26.60 billion and Earnings Per Share (EPS) of $14.83. Its operating margin of 35.72% is better than 97.2% of companies in the Drug Manufacturers industry. Overall, GuruFocus ranks Amgen's profitability as strong.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Amgen is 8.2%, which ranks better than 57.31% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth is 2.7%, which ranks worse than 62.46% of companies in the Drug Manufacturers industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Amgen's ROIC was 18.89, while its WACC came in at 6.93.
Conclusion
In conclusion, Amgen (AMGN, Financial) is estimated to be fairly valued. The company's financial condition is poor, and its profitability is strong. Its growth ranks worse than 62.46% of companies in the Drug Manufacturers industry. To learn more about Amgen stock, you can check out its 30-Year Financials here.
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