Amgen's Earnings Increase 30%, But Is It A Buy?

Jan.30.14 | About: Amgen Inc. (AMGN)

Amgen Inc. (NASDAQ:AMGN) is a global biotech company that discovers, develops, manufactures and delivers human therapeutics. The company reported earnings after the market closed on 28Jan14 and on the surface everything looked good with the company reporting fourth quarter earnings of $1.82 per share (beating estimates by $0.14) on revenue of $5.01 billion (beating analysts' estimates by $200 million). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Product Sales (millions)

4Q13

4Q12

Y/Y

Neulasta

$ 1,098

$ 994

10%

Neupogen

$ 309

$ 312

-1%

Enbrel

$ 1,200

$ 1,161

3%

Aranesp

$ 470

$ 489

-4%

Epogen

$ 525

$ 479

10%

Sensipar/Mimpara

$ 307

$ 256

20%

Vectibix

$ 102

$ 91

12%

Nplate

$ 120

$ 101

19%

Xgeva

$ 286

$ 215

33%

Prolia

$ 236

$ 154

53%

Kyprolis

$ 73

$ -

 

Other

$ 73

$ 85

-14%

Total

$ 4,799

$ 4,337

11%

Click to enlarge

Compared to last year total revenue has increased by 11% for the fourth quarter. Neulasta, which is used for white blood cell stimulation and accounts for 23% of sales increased a whopping 10% from the prior year. Sensipar, which is indicated for the treatment of secondary hyperparathyroidism and accounts for 6% of sales increased by 20%. Vectibix, which is used for the treatment of metastatic colorectal cancer and accounts for 2% of sales increased by 12%. Nplate, which regulates platelet production and accounts for 3% of sales increased by 19%. Xgeva, used for the treatment of osteoporosis and accounts for 6% of sales increased by a whopping 33%. Prolia which is also used for the treatment of osteoporosis and accounts for 5% of sales increased by an astounding 53%. Kyprolis, which was the target product from the Onyx acquisition pulled in $73 million for the fourth quarter and accounts for just 1.5% of sales for now. Other product sales decreased by 14%. As you can see it was a broad increase over all the products that Amgen provides and I would have to say it was an awesome quarter.

Income Statement

Income Statement

4Q13

4Q12

Y/Y

Product Sales

$ 4,799

$ 4,337

 

Other revenues

$ 212

$ 84

152%

Total revenues

$ 5,011

$ 4,421

13%

Cost of sales

$ 1,029

$ 922

12%

Research and development

$ 1,249

$ 938

33%

Selling, general and administrative

$ 1,521

$ 1,373

11%

Other

$ 25

$ 100

-75%

Total operating expenses

$ 3,824

$ 3,333

15%

Operating Income

$ 1,187

$ 1,088

9%

Interest expense, net

$ 261

$ 291

-10%

Interest and other income, net

$ 88

$ 126

-30%

Income before income taxes

$ 1,014

$ 923

10%

Adjustments to operating expenses

$ 580

$ 338

72%

Non-cash interest expense associated with convertible notes

$ -

$ 36

-100%

Bridge financing costs associated with the Onyx business combination

$ -

$ -

#DIV/0!

Adjusted income before income taxes

$ 1,594

$ 1,297

23%

GAAP provision for income taxes

$ (7)

$ 135

-105%

Income tax effect of the above adjustments

$ 228

$ 97

135%

Other income tax adjustments

$ (18)

$ (23)

-22%

Adjusted provision for income taxes

$ 203

$ 209

-3%

GAAP net income

$ 1,021

$ 788

30%

Adjustments to income before income taxes, net of the tax effect of the above adjustments

$ 352

$ 277

27%

Other income tax adjustments

$ 18

$ 23

-22%

Adjusted net income

$ 1,391

$ 1,088

28%

Avg. basic outstanding shares

754

763

-1%

Avg. basic diluted shares

766

778

-2%

Earnings per basic share

$ 1.84

$ 1.43

29%

Earnings per diluted share

$ 1.82

$ 1.40

30%

Click to enlarge

Looking at this particular income statement at first glance might seem very dramatic with all the seismic shifts in percentages but these shifts are due mainly to the acquisition of Onyx Pharmaceuticals and for this reason I will only focus on the main lines. Total revenues increased an astounding 13%, but total operating expenses outpaced them by 15%. Nonetheless, operating income increased by 9% from the prior year. Adjusted income before income taxes increased 23% helping GAAP net income increase 30%. Adjusted net income increased a total of 28% helping boost earnings per share on a diluted basis by 30%!

Balance Sheet

Balance Sheet

4Q13

4Q12

Y/Y

Cash, cash equivalents and marketable securities

$ 19,401

$ 24,061

-19%

Trade receivables, net

$ 2,697

$ 2,518

7%

Inventories

$ 3,019

$ 2,744

10%

Other current assets

$ 2,250

$ 1,886

19%

Total current assets

$ 27,367

$ 31,209

-12%

Property, plant and equipment, net

$ 5,349

$ 5,326

0%

Intangible assets, net

$ 13,262

$ 3,968

234%

Goodwill

$ 14,968

$ 12,662

18%

Restricted investments

$ 3,413

$ -

 

Other assets

$ 1,766

$ 1,133

56%

Total assets

$ 66,125

$ 54,298

22%

Accounts payable and accrued liabilities

$ 5,442

$ 5,696

-4%

Current portion of long-term debt

$ 2,505

$ 2,495

0%

Total current liabilities

$ 7,947

$ 8,191

-3%

Long-term debt

$ 29,623

$ 24,034

23%

Other noncurrent liabilities

$ 6,459

$ 3,013

114%

Stockholders' equity

$ 22,096

$ 19,060

16%

Total liabilities and stockholders' equity

$ 66,125

$ 54,298

22%

Click to enlarge

So once again there are pretty big shifts in the balance sheet due to the purchase of Onyx and I think the first and most important thing you might notice about the balance sheet is the 19% drop in cash and cash equivalents. The company did pay $10.4 billion to buy Onyx and did take out an $8.1 billion five-year loan to pay for the purchase back in August.

Conclusion

The company reported earnings which were 30% higher than a year before on 11% more revenue while the share price was up 42.86% in the past year excluding dividends. The share count has decreased 1% for the entire year but management didn't buy any of its own shares in the quarter. I believe this to be an indication that management thinks the stock price may just be too expensive up here. I definitely love that both earnings per share and revenue were up year over year. On a fundamental basis I believe this company is inexpensively valued with respect to 2014 earnings. The stock was down 1.27% the day after reporting earnings in the face of an S&P500 which dropped 1.02% that day. I believe it was down not because of the beat on earnings, but because of the forward guidance which came in lower than analyst estimates. This was a pretty good quarter to me and the stock is interesting and if the stock price did indeed drop because of analyst forecasts not being met, then I will be picking up shares big time and sometime soon.

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 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.