Amgen Inc. (AMGN - $56.90) is the world’s largest independent biotechnology medicines company. They discover, develop, manufactures and market medicines for serious illnesses. Their focus is on human therapeutics and AMGN concentrates on medicines based on advances in cellular and molecular biology. 2009 R&D investment was about $2.9 billion or 20% of total sales.
This biotechnology pioneer has been solidly profitable for many years and posted $4.83 per share in 2009 earnings from continuing operations - the highest EPS in its history. Despite its excellent results and record earnings, AMGN shares now trade for 34% less than they did at their peak price of $86.90 set back in 2005 when EPS were just $2.95.
Here are Amgen’s per share numbers (excluding non-recurring items) as reported by Value Line:
Earnings estimates for 2010 – 2011 are in a tight range. Zacks comes in at the low end with expectations of $5.04 and $5.41 while Standard and Poors sees $5.08 and $5.46. Value Line notes that AMGN’s ‘earnings predictability’ ranks in the 95th percentile of their 1700 stock universe (with 100th being best).
At this morning’s quote of $56.90 AMGN’s multiple is a historically low 11.3x the low-end estimate for this year and< 10.6x the Zacks estimate for 2011. Based on P/E, this is perhaps the best time in history to be picking up Amgen shares.
Amgen was holding over $13.4 billion in treasury cash as of December 31, 2009 and carries Value Line’s top ranks for both safety and financial strength. Surprisingly it also has a below average (0.65) Beta which is unusual for a biotech issue.
While the health care picture remains unclear it is unlikely for AMGN to regain the ultra-high valuations it commanded 5 – 10 years ago. I do think it will bounce back to at least a 14 – 15x multiple, though. Even fourteen times this year’s bottom estimate would bring these shares back to over $70 – a gain of 24%. By the end of 2011 that same P/E will lead to a target price of almost $76 if the EPS come in as expected.
Are those goals reasonable? Standard and Poors rates AMGN as a 4-Star stock (out of 5) and carries a 12-month target of $67 /share. They see ‘fair value’ as an even higher $77.40 in their latest full report. Morningstar has a ‘fair value’ of $65 and a long term ‘consider sell’ price of $91 /share.
Amgen shares hit peak prices of $64.76 - $86.90 in each of the past seven calendar years and fundamentals are better now than ever before.
The current low price appears to offer an attractive entry point for potential gains of 20 - 50% over the next year or two.
If you’re comfortable with options trading you might want to consider writing (selling) some LEAP puts on this high quality issue. Here are some that look very tempting at the moment:
Dr. Paul Price
www.BeatingBuffett.com
Disclosure: Author is short AMGN puts.
This biotechnology pioneer has been solidly profitable for many years and posted $4.83 per share in 2009 earnings from continuing operations - the highest EPS in its history. Despite its excellent results and record earnings, AMGN shares now trade for 34% less than they did at their peak price of $86.90 set back in 2005 when EPS were just $2.95.
Here are Amgen’s per share numbers (excluding non-recurring items) as reported by Value Line:
Year | Sales | C/F | EPS | Avg. P/E | 52-wk range |
2001 | 3.84 | 1.48 | 1.18 | 50.8x | 45.40 – 75.10 |
2002 | 4.28 | 1.59 | 1.39 | 35.7x | 30.60 – 62.90 |
2003 | 6.53 | 2.30 | 1.69 | 36.4x | 48.10 – 72.40 |
2004 | 8.37 | 2.87 | 2.19 | 27.0x | 52.00 – 66.90 |
2005 | 10.16 | 3.72 | 2.95 | 23.7x | 56.20 – 86.90 |
2006 | 12.24 | 4.41 | 3.51 | 20.2x | 63.50 – 81.20 |
2007 | 13.59 | 4.57 | 3.31 | 17.4x | 46.20 – 76.90 |
2008 | 14.33 | 5.03 | 3.90 | 13.2x | 39.20 – 66.50 |
2009 | 14.72 | 6.01 | 4.83 | 11.4x | 44.96 – 64.76 |
Earnings estimates for 2010 – 2011 are in a tight range. Zacks comes in at the low end with expectations of $5.04 and $5.41 while Standard and Poors sees $5.08 and $5.46. Value Line notes that AMGN’s ‘earnings predictability’ ranks in the 95th percentile of their 1700 stock universe (with 100th being best).
At this morning’s quote of $56.90 AMGN’s multiple is a historically low 11.3x the low-end estimate for this year and< 10.6x the Zacks estimate for 2011. Based on P/E, this is perhaps the best time in history to be picking up Amgen shares.
Amgen was holding over $13.4 billion in treasury cash as of December 31, 2009 and carries Value Line’s top ranks for both safety and financial strength. Surprisingly it also has a below average (0.65) Beta which is unusual for a biotech issue.
While the health care picture remains unclear it is unlikely for AMGN to regain the ultra-high valuations it commanded 5 – 10 years ago. I do think it will bounce back to at least a 14 – 15x multiple, though. Even fourteen times this year’s bottom estimate would bring these shares back to over $70 – a gain of 24%. By the end of 2011 that same P/E will lead to a target price of almost $76 if the EPS come in as expected.
Are those goals reasonable? Standard and Poors rates AMGN as a 4-Star stock (out of 5) and carries a 12-month target of $67 /share. They see ‘fair value’ as an even higher $77.40 in their latest full report. Morningstar has a ‘fair value’ of $65 and a long term ‘consider sell’ price of $91 /share.
Amgen shares hit peak prices of $64.76 - $86.90 in each of the past seven calendar years and fundamentals are better now than ever before.
The current low price appears to offer an attractive entry point for potential gains of 20 - 50% over the next year or two.
If you’re comfortable with options trading you might want to consider writing (selling) some LEAP puts on this high quality issue. Here are some that look very tempting at the moment:
Sell | Option Premium | Break-Even Price | *Margin of Safety |
Jan. 2012 $50 Puts | $5.30 /share | $44.70 | 21.4% |
Jan. 2012 $60 Puts | $9.90 /share | $50.10 | 11.9% |
Jan. 2012 $70 Puts | $16.30 /share | $53.70 | 5.9% |
* The % that the break-even price is below the current quote | |||
Dr. Paul Price
www.BeatingBuffett.com
Disclosure: Author is short AMGN puts.
