Image Source: PixabayLinked here is a detailed quantitative analysis of Amgen, Inc. (AMGN). Below are some highlights from the above-linked analysis:
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 premium to all four valuations 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 an 89.5% premium to its calculated fair value of $164.86. AMGN did not earn any Stars in this section.
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 no Stars in this section. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for 14 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
The NPV MMA Diff. of $318 is below the $2,100 target I look for in a stock that has increased dividends as long as AMGN has. If AMGN grows its dividend at 5.6% per year, it will take 6 years to equal an MMA yielding an estimated 20-year average rate of 3.75%.
Peers: The company’s peer group includes: Biogen Inc. (BIIB) with a 0.0% yield and Gilead Sciences, Inc. (GILD) with a 4.5% yield.
Conclusion: AMGN did not earn any Stars in the Fair Value section, did not earn any Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of zero Star. This quantitatively ranks AMGN as a 0-Star Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $172.78 before AMGN’s NPV MMA Differential decreased to the $2,100 minimum that I look for in a stock with 14 years of consecutive dividend increases. At that price the stock would yield 5.2%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,100 NPV MMA Differential, the calculated rate is 11.3%. This dividend growth rate is higher than the 5.6% used in this analysis, thus providing a margin of safety. AMGN has a risk rating of 2.25 which classifies it as a Medium 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 93% (up from 92%) is well above my 45% maximum, and its free cash flow payout of 68% (up from 61%) is above my 60% maximum. The stock is currently trading well above my calculated fair value of $164.86.More By This Author:New Golden Investment: Universal Health Realty Income Trust
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