With Amgen (AMGN) setting new 52-week highs on Friday, I decided to take a closer look into the company and see if it provides an opportunity at these price levels. Here are the six points I looked at while researching the company:
Valuation: AMGN’s trailing five-year valuation metrics suggest that the stock is overvalued at these levels as two of the metrics are trading at above five-year average levels while the other one is in line with the averages. AMGN’s current P/B ratio is 2.7 and it has averaged 2.7 over the past five years with a high of 3.9 and low of 2.0. AMGN’s current P/S ratio is 4.2 and it has averaged 3.7 over the past five years with a high of 4.4 and low of 3.1. AMGN’s current P/E ratio is 17.3 and it has averaged 14.6 over the past five years with a high of 21.5 and low of 11.1.
Price Target: The consensus price target for the analysts who follow Amgen is $66. That is downside of about 5% and suggests that the stock is overvalued at these levels.
Forward Valuation: AMGN is trading at about $70 a share with analysts expecting the company to report EPS of $5.90 next year for a forward P/E of 12. Revenue is expected to rise 4% next year. Some other large biotech companies include: Celgene (CELG), Astrazeneca (AZN), and Bristol-Myers Squibb (BMY). CELG is trading at a forward P/E ratio of 16 with revenue expected to jump 13% next year. AZN is trading at a forward P/E multiple of 8 with revenue expected to fall 10% next year. BMY is trading at a forward P/E multiple of 16 with revenue expected to fall 14% next year. The average forward P/E of the three companies is 13. This suggests that Amgen is trading at above fair value compared with its comps.
Earnings Estimates: AMGN beat earnings estimates the past four quarters with margins between 5-10 cents and about a 4%-8% difference from consensus. This suggests that analysts have a pretty tight grip on AMGN’s results and earnings results probably will have little to no effect on stock price.
Dividend: Amgen’s current quarterly dividend is 36 cents per share, which was just increased in December by the company’s Board. The new dividend represents an approximate 29% increase from that paid in the previous two quarters. The annual yield is 2%.
Price Action: The stock struggled in the first half of last year, rising to over $60 a share from $50 but failing to sustain that rally, falling to below $48 a share. Since then, AMGN has been strong, up about 45% to its current level of $70 a share. AMGN is above its 50-day moving average, which sits at $60.65, and its 200-day moving average, which sits at $56.96. Support on the downside includes $64 followed by $61. The $70 level should provide upside resistance for the stock followed by $75. The stock looks extended here as it is way above its moving averages.
Conclusion: The valuation metrics suggest that the stock is overvalued here so I would advise staying from the stock and looking elsewhere. The dividend is attractive but nothing to get excited about. If the stock falls closer to 52-week lows then maybe it would be a good bet with the valuation metrics suggesting significant upside at those levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.