Amgen Inc, a leading biotechnology company specializing in human therapeutics, is currently being evaluated for its fair valuation. With a recent daily gain of 5.81% and an Earnings Per Share (EPS) of $14.71, investors are questioning whether Amgen is priced correctly. In order to shed light on this question, a thorough valuation analysis is needed.
Amgen’s portfolio consists of various drugs, including Epogen, Aranesp, Neupogen, Neulasta, Enbrel, and Otezla, which cater to renal disease, cancer supportive care, immune system boosting, and inflammatory disease treatments. The company’s expansion has been evident with the introduction of their first cancer therapeutic, Vectibix, in 2006, as well as the addition of bone-strengthening drugs and biosimilars to their product lineup.
Currently, the stock price of Amgen is $244.1 per share, while the GF Value, an estimate of its fair value, stands at $262.84. The GF Value is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock’s price deviates significantly from the GF Value Line, it suggests that the stock may be overvalued or undervalued.
Considering Amgen’s stock price and market capitalization of $130.4 billion, it seems that the stock is fairly valued. This implies that the long-term return on investment is likely to align closely with the rate of the company’s business growth.
However, it is crucial to assess a company’s financial strength before investing. Unfortunately, Amgen’s cash-to-debt ratio of 0.51 ranks lower than 60.44% of companies in the Drug Manufacturers industry, indicating relatively poor financial strength.
On a positive note, Amgen has maintained profitability for the past 10 years, boasting an operating margin of 34.31%. This outperforms 96.62% of companies in the Drug Manufacturers industry and signifies strong profitability.
While profitability is important, growth is another crucial factor in evaluating a company’s value. Amgen’s average annual revenue growth of 8.2% surpasses 57.38% of its industry counterparts. However, its 3-year average EBITDA growth of 2.7% falls behind 62.42% of companies in the industry.
Another aspect to consider is the Return on Invested Capital (ROIC) compared to the Weighted Average Cost of Capital (WACC). Over the past 12 months, Amgen’s ROIC was 18.2, while its WACC stood at 6.98. This indicates that the company is creating value for its shareholders.
In conclusion, Amgen Inc’s stock appears to be fairly valued. Despite its poor financial condition, the company demonstrates strong profitability. However, its growth rate lags behind a significant portion of the industry. Investors should carefully evaluate these factors before making any decisions.
