ModernGraham Quarterly Valuation Of Amgen Inc.

Mar.17.14 | About: Amgen Inc. (AMGN)

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Amgen Inc. (NASDAQ:AMGN) fares in the ModernGraham valuation model.

AMGN Chart

AMGN data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $123.07
MG Value $126.93
MG Opinion Fairly Valued
Value Based on 3% Growth $78.77
Value Based on 0% Growth $46.18
Market Implied Growth Rate 7.08%
Net Current Asset Value (NCAV) -$22.08
PEmg 22.65
Current Ratio 3.44
PB Ratio 4.20
Click to enlarge

Balance Sheet - 12/31/2013

Current Assets $27,367,000,000
Current Liabilities $7,947,000,000
Total Debt $29,623,000,000
Total Assets $66,125,000,000
Intangible Assets $28,230,000,000
Total Liabilities $44,029,000,000
Outstanding Shares 754,600,000
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Earnings Per Share

2013 $6.64
2012 $5.52
2011 $4.04
2010 $4.79
2009 $4.51
2008 $3.90
2007 $2.82
2006 $2.48
2005 $2.92
2004 $1.79
2003 $1.68
2002 -$1.21
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Earnings Per Share - ModernGraham

2013 $5.43
2012 $4.74
2011 $4.23
2010 $4.12
2009 $3.63
2008 $3.06
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Dividend History

AMGN Dividend Chart

AMGN Dividend data by YCharts

Conclusion:

Amgen is suitable for the Enterprising Investor but not the Defensive Investor, having failed the Defensive Investor's requirement of dividend payments for over ten years, as well as having high PEmg and PB ratios. The company only fails the Enterprising Investor's requirement regarding the level of debt relative to the company's current assets, but that is not enough to turn away the Enterprising Investor. As a result, Enterprising Investors should feel comfortable proceeding with further research into the company. From a valuation perspective, the company appears to be fairly valued at the current time, after growing EPSmg from $3.63 in 2009 to $5.43 in 2013. This level of demonstrated growth supports the market's current implied estimate of 7.08% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is within a margin of safety relative to the market price.

Disclaimer: The author did not hold a position in Amgen Inc. (AMGN) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.