Amgen (NASDAQ:AMGN) has been around for quite some time as a publicly traded company (since 1983 from the information I can find) but never paid a dividend until August of 2011. Traditionally biotech companies haven't paid dividends and instead have plowed their earnings back into research and development to grow the future earnings of the company with new products. Paying of a dividend is usually a sign that there is nothing in the pipeline of the biotech company and that the best way to make the stock price move up is with said dividend payments. That may have been the case with Amgen back in 2011 and hence the dividend payment but let's take a look valuations, financial, and technical look at the company to figure if it is worth a buy or not.
Amgen currently trades at a trailing twelve month P/E ratio of 16.31, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.65 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $8.27/share and using that value I'd consider the stock cheap until at least $124. The PEG ratio (1.73), which measures the ratio of the price you're currently paying for the trailing twelve month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Amgen is fairly priced based on a 5-year EPS growth rate of 9.44%.
On a financial basis the things I look for are the dividend payouts, return on assets, equity, and investment. Amgen boasts a dividend of 1.95% with a payout ratio of 25.64% while sporting return on assets, equity, and investment values of 9.11%, 23.95%, and 10.51% respectively; which are all respectable values but not high enough for me personally to consider buying my full position in the stock. If maybe you feel the market will retract a little more and would like a safety play then maybe the 1.95% yield of this company is good enough for you to take shelter in for the time being. Amgen does not have a long history of paying dividends yet but it has raised its dividend twice already since 2011 at a clip of 28.5% and 30.5%.
First looking at the relative strength index (RSI) chart we see that it hit a value of 30 in early June and a value of 30 is usually considered to be in oversold territory. Next graph to look at is the moving average convergence-divergence (MACD) chart at the bottom we see a drop in the beginning of June which coincides with the RSI chart. However, we see on the same MACD chart that the blue bars are getting smaller which indicates a leveling out at current prices before a move up. Currently the stock stands at $96.37 with the first level of resistance at $97.43 and the first floor of support at $94.32.
- Amgen's melanoma product T-Vec was shown to improve survival in skin cancer patients by 21% when compared to standard treatment (at the 9:50 mark of the video). But I don't believe this product to be a game changer for the company.
From doing the analysis I believe Amgen to be a forward looking value play which has room to grow its dividend yield significantly, technically the stock seems to be flattening out at which I will begin to add to my current position. The company no longer trades like a biotech stock and trades more like an old pharma stock, which is something I am fine with because if something does get discovered in the pipeline it will only add fuel to the fire of what I believe to be an appreciating stock price. As I said I will be adding to my position at these levels and continue to monitor the story as it is very close to resistance levels technically.
Disclosure: I am long AMGN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!