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 1.) and 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 slight discount to its calculated fair value of $236.1. AMGN earned a Star in this section since it is trading at a fair value.
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 one Star in this section for 3.) above. 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 13 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 $2,762 This amount is in excess of the $2,200 target I look for in a stock that has increased dividends as long as AMGN has. The stock's current yield of 3.75% exceeds the 3.75% 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 3.9% yield.
Conclusion: AMGN earned one Star in the Fair Value section, earned one Star 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 $247.73 before AMGN's NPV MMA Differential decreased to the $2,200 minimum that I look for in a stock with 13 years of consecutive dividend increases. At that price the stock would yield 3.7%.
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 9.0%. This dividend growth rate is lower than the 9.8% 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 92% (down from 98%) is well above my 45% maximum, and its free cash flow payout of 61% (up from 51%) is slightly above my 60% maximum. The stock is currently trading near my calculated fair value of $236.10.
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,