Company Description: Amgen Inc. is one of the world's leading biotech companies with major treatments for anemia, neutropenia, rheumatoid and psoriatic arthritis, psoriasis, cancer and osteoporosis.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
AMGN is trading at a discount to only 3.) above. Since AMGN's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 15.2% premium to its calculated fair value of $220.64. AMGN did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
AMGN earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. AMGN earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for 11 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $1,811 is below the $2,400 target I look for in a stock that has increased dividends as long as AMGN has. The stock's current yield of 2.77% exceeds the 2.74% estimated 20-year average MMA rate.
Peers: The company's peer group includes: The Biogen Inc. (BIIB) with a 0.0% yield and Gilead Sciences, Inc. (GILD) with a 4.2% yield.
Conclusion: AMGN did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks AMGN as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $225.31 before AMGN's NPV MMA Differential increased to the $2,400 minimum that I look for in a stock with 11 years of consecutive dividend increases. At that price the stock would yield 3.1%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,400 NPV MMA Differential, the calculated rate is 11.1%. This dividend growth rate is higher than the 10.0% used in this analysis, thus providing no margin of safety. AMGN has a risk rating of 2.00 which classifies it as a Medium risk stock.
AMGN competes in highly competitive and regulated markets, subject to changes in government reimbursement policies and drug safety oversight. These risks are mitigated by AMGN's diversified product line and the company's ability to generate strong cash flows that can be used for share repurchases, cash dividends and acquisitions.
The company's debt to total capital of 78% (up from 77%) is above my 45% maximum, while its free cash flow payout of 42% (down from 43%) is well below my 60% maximum. The stock is currently trading at a premium to my calculated fair value of $220.64.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in AMGN (0.0% of my Dividend Growth Stocks Portfolio).
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Tags: AMGN, BIIB, GILD,
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