Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

The last time I wrote about Amgen Inc. (NASDAQ:AMGN) I stated, "…I will not be adding to my position now because I think I can get it at a lower price." After writing the article the lowest the stock dropped was 1.11% about two weeks later but since the last article it popped 10.33% versus the 2.37% gain the S&P 500 (NYSEARCA:SPY) posted. It's quite unfortunate that I didn't plow money into the company at the time but it's OK because my original investment appreciated handsomely. Amgen is a global biotech company (the first of its kind) which discovers, develops, manufactures and delivers human therapeutics.

On January 28, 2014, the company reported fourth quarter earnings of $1.82 per share, which beat the consensus of analysts' estimates by $0.14. In the past year the company's stock is up 48.12% excluding dividends (up 49.91% including dividends), and is beating the S&P 500, which has gained 20.98% 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 18.65, 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 14.21 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $8.71 per share and I'd consider the stock inexpensive until about $131. The one-year PEG ratio (2.65), 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 expensively priced based on a 1-year EPS growth rate of 7.03%. Below is a comparison table of the fundamental metrics for the company when I wrote all articles pertaining to the company.

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

17Feb14

123.84

18.65

14.21

8.71

131

2.65

7.03

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 1.97% with a payout ratio of 37% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.9%, 24.2% and 10.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.97% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

19Aug13

1.79

27.4

8.6

23.2

10.8

21Nov13

1.67

30.0

9.0

24.0

10.8

17Feb14

1.97

37.0

8.9

24.2

10.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart (RSI) at the top, I see the stock near overbought territory with a current value 63.89. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($123.84), I'm looking at $129.52 to act as resistance and the 20-day simple moving average (currently $119.43) to act as support for a risk/reward ratio which plays out to be -3.56% to 4.59%.

Recent News

  1. At the end of January the company reported positive results for evolocumab. Evolocumab is a monoclonal antibody being used to treat hyperlipidemia or abnormally elevated levels of lipids or lipoproteins in the blood.
  2. Jeffries raised its price target on the company in late January. The target was boosted from $133 to $138 based on the premise that revenue and EPS growth is above other large pharma companies.
  3. Back in December the company declared a quarterly dividend. The $0.61 dividend is a 29.8% increase from the prior dividend. The ex-date was Feb. 11 with a pay date of March 7.

Conclusion

The biotech industry has been on a tear recently and should continue to rip to new highs, which is why you need to be careful in which stocks you select. I believe it is important to select stocks which are undervalued and Amgen is one of those names in this industry. Fundamentally the company is inexpensively priced based on 2015 earnings and expensive on future growth potential. Financially the dividend is secure with lots of room to keep increasing the payout ratio. On a technical basis I believe there is some bullish momentum but it is getting long in the tooth. Due to the expensive valuation on next year's earnings growth potential, tiring technicals and severe run-up in the stock this last month I'm not going to be buying a position at this 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: Amgen Increases Dividend 30%, But Is It A Buy?