In the first round of the Dividend Portfolio playoffs we have #12 seeded Amgen, Inc. (NASDAQ:AMGN) taking on #5 seeded Walt Disney Company (NYSE:DIS). Amgen is a global biotech company that discovers, develops, manufactures and delivers human therapeutics. Disney is a diversified worldwide entertainment company which operates in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive.
The following table depicts the recent earnings reports for each company:
($ in billions)
($ in billions)
Amgen is up 34.29% excluding dividends in the past year (up 36.12% including dividends) while Disney is up 54.85% excluding dividends (up 55.98% including dividends), and the S&P 500 has gained 30.62% in the same time frame. This matchup will be played out in a best of seven game series based on the metrics below. For a complete list of all the metrics utilized in the seven game series click here. Not all the metrics will be looked at if a team can win and win early. This wild-card matchup will determine the winner which will go on to play against General Electric Company (NYSE:GE) in the next round of the playoffs for the Dividend Growth Portfolio Super Bowl.
Forward P/E is the metric of how many times future earnings you are paying up for a particular stock. The earnings portion of the ratio I utilize is the earnings value for the next twelve months or for the next full fiscal year. I like utilizing the forward P/E ratio as opposed to the trailing twelve month P/E ratio because it is an indication of where the stock is going to go in the future. I like to get a glimpse of the future, but will take note of where it was coming from in the past. Amgen carries a 1-year forward-looking P/E ratio of 14.08 which is inexpensively priced for the future right now while Disney's 1-year forward-looking P/E ratio of 16.91 is fairly priced. Game 1 goes to Amgen.
This metric is the trailing twelve month P/E ratio divided by the anticipated growth rate for a specific amount of time. This ratio is used to determine how much an individual is paying with respect to the growth prospects of the company. Traditionally the PEG ratio used by analysts is the five year estimated growth rate, however I like to use the one year growth rate. This is because as a capital projects manager that performs strategy planning for the research and development division of a large-cap biotech company I noticed that 100% of people cannot forecast their needs beyond one year. Even within that one year things can change dramatically. I put much more faith in a one year forecast as opposed to a five year forecast. The PEG ratio some say provides a better picture of the value of a company when compared to the P/E ratio alone. The 1-year PEG ratio for Amgen is currently at 1.55 based on a 1-yr earnings growth of 9.1% while Disney's 1-yr PEG ratio stands at 1.18 with a 1-yr growth rate of 14.36%. Disney is victorious in Game 2 of the series to even things out.
EPS Growth Next Year
This metric is really simple, it is essentially taking the difference of next year's projected earnings and comparing it against the current year's earnings. The higher the value the better prospects the company has. I generally like to see earnings growth rates of greater than 11%. Again, in this situation I like to take a look at the one year earnings growth projection opposed to the five year projection based on what I discussed in the PEG section above. Amgen has a projected EPS growth rate of 9.1% while Disney sports a growth rate of 14.36%. Disney has now taken a one game lead in this best of seven series.
Dividend yield is a no brainer; it must be had in a dividend portfolio. The dividend yield is the amount of annual dividend paid out by a company in any given year divided by the current share price of the stock. In my dividend portfolio I don't discriminate against low yielding stocks as long as they provide excellent fundamental metrics in the form of the forward P/E, the 1-yr PEG and the 1-yr EPS growth rate. Dividends are a way to measure how much cash flow you're getting for each dollar invested in the stock. Obviously, the higher the yield, the better, as long as it is covered by the trailing twelve month earnings. Amgen pays a dividend of 2.13% with a payout ratio of 39% of trailing 12-month earnings while Disney pays a dividend of 1.13% with a payout ratio of 25% of trailing 12-month earnings. Amgen takes Game 4 away from Disney to even the series at two games apiece.
Return on Assets
Return on assets is the metric which shows how profitable a company is relative to its total assets, telling us how efficient a management team is at using its assets to generate earnings. It is best to compare ROA values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. The assets of a company are comprised of both debt and equity. The higher the ROA value, the better, because the company is earning more money on less investment. Amgen is showing a 9% efficiency rate on their assets while Disney is showing 7.6% efficiency. With this victory Amgen gets a game closer to clinching a spot in the next round of the playoffs.
Return on Equity
Return on equity is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. It is best to compare ROE values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. Equity is determined as the net income for the full fiscal year before dividends paid to common stock holders but after dividends to preferred stock, but does not include preferred shares. The higher the ROE value, the better. Amgen proves their efficiency of managing their shareholders equity to be 24% while Disney sports a value of 14.3%. By winning this game Amgen advances to the next round of the playoffs with a four to two series win.
Amgen came into the playoffs and pulled an upset victory out of the first round against Disney. Amgen has lots of promise in its portfolio of products, especially with the recent acquisition of Onyx Pharma. This victory actually doesn't surprise me. Disney is one of those stocks which I believe to be fairly valued but will almost never pull-back, it just keeps chugging upwards (which is not a bad problem to have). After upsetting Disney, Amgen will advance to the next round of playoffs and go head to head against the #4 seeded General Electric.
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!
Disclosure: I am long DIS, AMGN, GE, . 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.