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 premium to all four valuations 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 slight premium to its calculated fair value of $243.04. 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 12 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
AMGN earned a Star in this section for its NPV MMA Diff. of $2,491. This amount is in excess of the $2,300 target I look for in a stock that has increased dividends as long as AMGN has. The stock's current yield of 3.14% 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 4.5% yield.
Conclusion: AMGN did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks AMGN as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $256.05 before AMGN's NPV MMA Differential decreased to the $2,300 minimum that I look for in a stock with 12 years of consecutive dividend increases. At that price the stock would yield 3.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,300 NPV MMA Differential, the calculated rate is 9.8%. This dividend growth rate is lower than the 10.1% used in this analysis, thus providing a small margin of safety. AMGN has a risk rating of 1.75 which classifies it as a Low 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 98% (up from 78%) is well above my 45% maximum, while its free cash flow payout of 51% (up from 42%) is well below my 60% maximum. The stock is currently trading near my calculated fair value of $243.04.
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).
Related Articles:
- 3M Co. (MMM) Dividend Stock Analysis
- Automatic Data Processing Inc. (ADP) Dividend Stock Analysis
- W.W. Grainger, Inc. (GWW) Dividend Stock Analysis
- Walgreens Boots Alliance, Inc. (WBA) Dividend Stock Analysis
- Air Products and Chemicals Inc. (APD) Dividend Stock Analysis
- More Stock Analysis
Tags: AMGN, BIIB, GILD,