Amgen Inc (AMGN, Financial) has recently seen a daily gain of 3.57%, and a 3-month gain of 12.15%. Furthermore, its Earnings Per Share (EPS) stands at 14.83. But does this mean the stock is fairly valued? This article provides a comprehensive analysis of Amgen's valuation to answer this question. Read on to find out more.
Company Overview
Amgen is a leading biotechnology-based human therapeutics company, with a historical focus on renal disease and cancer supportive-care products. Its flagship drugs include Epogen, Aranesp, Neupogen, Neulasta, Enbrel, and Otezla, among others. The company's current stock price is $261.97, which is close to its GF Value of $262.6. This suggests that the stock might be fairly valued. However, a more detailed analysis is necessary to confirm this.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line, visible on our summary page, provides an overview of the stock's fair trading value.
According to GuruFocus' valuation method, Amgen (AMGN, Financial) appears to be fairly valued. The GF Value estimates that the stock's fair value is based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $261.97 per share, Amgen stock is believed to be fairly valued.
Because Amgen is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Before investing in a company, it's important to check its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage can provide a good understanding of a company's financial strength. Amgen has a cash-to-debt ratio of 0.56, which is lower than 58.54% of companies in the Drug Manufacturers industry. This indicates that the financial strength of Amgen is weak.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Amgen has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $26.60 billion and Earnings Per Share (EPS) of $14.83. Its operating margin is 35.72%, which ranks better than 97.2% of companies in the Drug Manufacturers industry. This indicates strong profitability.
Growth is one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Amgen's 3-year average revenue growth rate is better than 57.38% of companies in the Drug Manufacturers industry. However, Amgen's 3-year average EBITDA growth rate is 2.7%, which ranks worse than 62.42% of companies in the Drug Manufacturers industry. This indicates somewhat weak growth.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Amgen's return on invested capital is 18.89, and its cost of capital is 6.93.
Conclusion
Overall, Amgen (AMGN, Financial) stock appears to be fairly valued. The company's financial condition is poor, but its profitability is strong. Its growth ranks worse than 62.42% 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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