Amgen Earnings Preview: Transitioning Story, To Growth From Value

| About: Amgen Inc. (AMGN)

Amgen (NASDAQ:AMGN), the somewhat-biotech, somewhat large-cap pharma company, reports its 2nd quarter 2013 financial results after the bell on Tuesday, 10/22/13.

Analyst consensus is expecting $1.77 in earnings per share (EPS) on $4.6 billion in revenues, for expected year-over-year growth of 6% and 7% respectively.

AMGN's story the last few years has been a "return of capital" to shareholders. AMGN has been buying back its stock hand over fist, as evidenced by the fact that AMGN has reduced fully-diluted share outstanding from 960 fully-diluted shares outstanding as of December 2010 to 764 million as of June 30, 2013.

That is a 20% share reduction in just 10 quarters.

However, the Onyx acquisition, which was announced in August 2013, looks to be more of a top-line growth repositioning. The deal is accretive in 2015, and the key drug - from what we've read - is Krypolis, which could be $3 billion in sales in a few years.

From its current pipeline, Prolia and Xgeva about 9% - 10% of revenues, are growing at very healthy rates (Prolia at 57% in Q2 2013, while Xgeva grew y/y at 22%) but slowing down.

Biotech has been a white hot sector the last few years, which has undoubtedly helped AMGN, so the question is can AMGN transition to some growth before its cash-flow runs out?

AMGN's dividend yield relative to large-cap pharma is just 1.5%, far short of the l/c pharma yields, but AMGN is trading at 15(x) cash-flow.

AMGN is generating a lot of free-cash, but is currently returning 90% of it to shareholders through the share repurchase and dividend pay-out.

In terms of valuation, AMGN looks pretty fully-valued at $114 per share. Our internal model values AMGN at $125, while Morningstar's model values AMGN at $114.

On 2013 and 2014 EPS estimates of $7.32 and $8.11 AMGN is trading at 15(x) and 14(x) current consensus, with expected EPS growth of 6% and 5% respectively.

AMGN has not appreciated materially since March 2013, and looks to be topping. We'll see what earnings and revenue growth looks like on Tuesday, 10/22, before making a final decision on the stock.

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.