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Summary

  • The company has a low dividend payout ratio.
  • The stock is inexpensive, based on 2015 earnings estimates.
  • Revenue increased from last year, but disappointed investors as the stock dropped 5% after the earnings announcement.

The last time I wrote about Amgen Inc. (NASDAQ:AMGN), I stated, "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." After writing the article, the stock dropped 8.17% versus the 2.16% gain the S&P 500 (NYSEARCA:SPY) posted. Amgen is a global biotech company (the first of its kind) which discovers, develops, manufactures and delivers human therapeutics.

On April 22, 2014, the company reported first-quarter earnings of $1.87 per share, which missed the consensus of analysts' estimates by $0.07. In the past year, the company's stock is up 2.1% excluding dividends (up 3.88% including dividends), and is losing to the S&P 500, which has gained 20.78% 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 17.13, 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 13.05 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $8.72 per share, and I'd consider the stock inexpensive until about $131. The 1-year PEG ratio (2.47), 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 6.94%. 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

24Apr14

113.72

17.13

13.05

8.72

131

2.47

6.94

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 2.15%, 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 2.15% 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

8.6

23.2

10.8

21Nov13

1.67

30

9.0

24.0

10.8

17Feb14

1.97

37

8.9

24.2

10.5

24Apr14

2.15

37

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 meandering around middle-ground territory, with a current value of 40.67 and trending downwards. 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, indicating bearish momentum. As for the stock price itself ($113.72), I'm looking at the 200-day simple moving average (currently $114.49) to act as resistance and $113.22 to act as support for a risk/reward ratio which plays out to be -0.44% to 0.68%.

Recent News

  1. On 22nd April, '14, the company reported first-quarter earnings, which missed expectations. Earnings per share were $1.87 on revenue of $4.52 billion, versus expectations of $1.94 per share and revenue of $4.76 billion.
  2. Revenue was up 5% from the prior year, but operating expenses were 13% more, which attributed to earnings drop of a whopping 5% from last year.
  3. The company's melanoma drug had mixed results recently. The Phase III clinical trial for Talimogene Iaherparepvec met the primary endpoint, but missed the secondary. The study was used to evaluate safety and efficacy, and the primary endpoint of durable response rate was met, but it was the overall survival endpoint which didn't pass.

Conclusion

The stock dropped 5.02% after reporting earnings, because analyst expectations weren't met, but I believe this may be a good opportunity to pick up more shares. Part of the reason for the earnings miss was related to drug sales of some of its major products being light, which caused the top line to miss estimates. If you take a look at the chart below, the company did have reduced revenue from last quarter, but increased revenue from the prior year. In my opinion, I'll give the company a pass on this earnings event. The second-biggest product, Enbrel (used for rheumatoid arthritis), had revenue drop 18% from last quarter, but that was to be expected by analysts, as they have been calling for that trend for quite some time.

Product Sales (millions)

1Q14

4Q13

1Q13

Q/Q

Y/Y

Neulasta

$ 1,090

$ 1,098

$ 1,039

-1%

5%

Neupogen

$ 289

$ 309

$ 299

-6%

-3%

Enbrel

$ 988

$ 1,200

$ 1,039

-18%

-5%

Aranesp

$ 460

$ 470

$ 468

-2%

-2%

Epogen

$ 462

$ 525

$ 435

-12%

6%

Sensipar/Mimpara

$ 270

$ 307

$ 264

-12%

2%

Vectibix

$ 103

$ 102

$ 87

1%

18%

Nplate

$ 113

$ 120

$ 96

-6%

18%

Xgeva

$ 279

$ 286

$ 223

-2%

25%

Prolia

$ 196

$ 236

$ 142

-17%

38%

Kyprolis

$ 68

$ 73

$ -

-7%

N/A

Other

$ 38

$ 73

$ 59

-48%

-36%

Total

$ 4,356

$ 4,799

$ 4,151

-9%

5%

Fundamentally, the company is inexpensively priced based on future earnings estimates, but expensive based on next year's earnings growth potential. Financially, the dividend has lots of room to grow. On a technical basis, I believe the stock may have a bit more downside potential for the short term. Due to the low dividend payout ratio, inexpensive valuation based on next year's earnings estimates, and the stock price going on sale after earnings, I will be pulling the trigger here right now just on a small batch.

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 Pays A Higher Dividend Yield After Shares Went On Sale