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The last time I wrote about Amgen (AMGN) I bought a small batch in it stating that was a good value at the time. Since the last article it actually shot up 7% excluding the dividend (it is up 7.41% including the dividend) versus the 8.46% gain the S&P500 (SPY) posted. Amgen is a global biotech company (the first of its kind) which discovers, develops, manufactures and delivers human therapeutics. On October 22, 2013, the company reported third quarter earnings of $1.94 per share, which beat the consensus of analysts' estimates by $0.15. In the past year the company's stock is up 32.78% excluding dividends (up 34.61% including dividends), and is beating the S&P 500, which has gained 32.06% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the healthcare sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.76, 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 13.81 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $8.13 per share and I'd consider the stock inexpensive until about $122. The 1-year PEG ratio (1.97), which measures the ratio of the price you're currently paying for the trailing 12-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 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 9.03%. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

19Aug13

104.91

17.63

12.67

8.28

124

1.5

11.69

21Nov13

112.25

17.76

13.81

8.13

122

1.97

9.03

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.67% with a payout ratio of 30% of trailing 12-month earnings while sporting return on assets, equity and investment values of 9%, 24% and 10.8%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.67% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 2 years raising it each time at a minimum of 28%! This last dividend announcement was the fourth one of $0.47 per share and I don't doubt the next time around the dividend will be increased in February. Below is a comparison table of the financial metrics for the company from the time of the last article to what it is right now.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

19Aug13

1.79

27.4

8.6

23.2

10.8

21Nov13

1.67

30

9

24

10.8

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock waffling around in middle-ground territory with a value of 44.4 and downward trajectory, indicating a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, also indicating a bearish pattern. As for the stock price itself ($112.25), I'm looking at the 20-day simple moving average to act as resistance (currently at $114.90) and $107.83 to act as support for a risk/reward ratio, which plays out to be -3.94% to 2.36%.

Recent News

  1. Bank of America/Merrill Lynch (BAC) recently had a meeting with Celgene (CELG) where Celgene stated they were hearing increased concerns from myeloma centers that cardiovascular events were occurring with patients using Amgen's Kyprolis. This does not bode well for Amgen which just shelled out about $10.4 billion to by Onyx Pharmaceuticals just for Kyprolis!
  2. Amgen recently announced some data on their high cholesterol drug stating the results looked encouraging and "may be a promising option to treat hyperlipidemia in a range of at-risk patients."
  3. The threat to Amgen's Neulasta in the form of Teva's (TEVA) Balugrastim has gone away for now as Teva has withdrawn the Biologics License Application on the basis of "pending the provision of additional confirmatory data."

Conclusion

An analyst at UBS (UBS) is stating that if you want to invest in biotech to stick with the big name companies, specifically saying that Amgen should be an outperformer if the risk-off trade continues. Keeping that in mind, I believe the stock is inexpensively valued based on future earnings, but is fairly valued based on growth potential. Financially the company is performing well by increasing returns on assets and equity, but the dividend yield has come down a bit albeit at the expense of a higher share price which I will take any day of the week. On a technical basis I would have said that I'd expect the stock to continue trending downwards for the short term. What troubles me for now is that earnings expectations for the coming year have been reduced, the news about competition is increasing, the dividend is too tiny to make me hideout in this name, and it's for these reasons I will not be adding to my position now because I think I can get it at a lower price.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: I'm Staying Away From Low Yielding Amgen For Now