As of October 10, 2023, Amgen Inc (AMGN, Financial) experienced a day's loss of -1.02%, with a 3-month gain of 20.54%. The company reported an Earnings Per Share (EPS) of 14.83. With these figures in mind, the question arises: is the stock Fairly Valued? In this article, we will delve into the valuation analysis of Amgen (AMGN), providing you with insights that can potentially enhance your investment decisions.
Amgen is a leading player in the biotechnology-based human therapeutics sector, with a rich history in renal disease and cancer supportive-care products. The company's flagship drugs include Epogen and Aranesp for red blood cell boosting, Neupogen and Neulasta for immune system boosting, and Enbrel and Otezla for inflammatory diseases. Amgen's acquisition of Onyx has strengthened its therapeutic oncology portfolio with Kyprolis. The company's latest launches include Repatha for cholesterol-lowering, Aimovig for migraines, Lumakras for lung cancer, and Tezspire for asthma.
As of the specified date, Amgen's stock price stood at $268.78, while its Fair Value (GF Value) was $264.79. This comparison suggests that the stock is fairly valued. The following analysis will further explore this valuation.
The GF Value is a unique measure of a stock's intrinsic value, derived from historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the fair trading value of the stock.
Amgen's GF Value indicates that the stock is fairly valued, with the stock price likely to fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, with potential for higher future returns. Considering Amgen's current price of $268.78 per share and a market cap of $143.80 billion, the stock appears to be fairly valued.
Given that Amgen is fairly valued, the long-term return of its stock is likely to align with the rate of its business growth.
Companies with weak financial strength pose a high risk of permanent capital loss. Therefore, it is crucial to review a company's financial strength before investing. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Amgen's cash-to-debt ratio is 0.56, ranking lower than 59.87% of 1039 companies in the Drug Manufacturers industry. The overall financial strength of Amgen is 5 out of 10, indicating fair financial strength.
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. A company with high profit margins is generally a safer investment than one with low profit margins. Amgen has been profitable for 10 years. In the past twelve months, the company generated a revenue of $26.60 billion and Earnings Per Share (EPS) of $14.83. Its operating margin is 35.72%, ranking better than 96.7% of 1031 companies in the Drug Manufacturers industry. Overall, GuruFocus ranks Amgen's profitability at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Amgen's 3-year average annual revenue growth is 8.2%, ranking better than 57.1% of 916 companies in the Drug Manufacturers industry. However, its 3-year average EBITDA growth rate is 2.7%, ranking lower than 61.82% of 880 companies in the Drug Manufacturers industry.
ROIC vs WACC
Another measure of a company's profitability is the comparison of its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. A higher ROIC than WACC is desirable. For the past 12 months, Amgen's ROIC is 18.89, and its WACC is 7.34.
In conclusion, Amgen (AMGN, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than 61.82% of 880 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.