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Amgen (NASDAQ:AMGN) and Merck (NYSE:MRK), two long-dormant healthcare giants, report second quarter earnings tonight, AMGN after the bell and then before the bell Friday morning, July 27th, for MRK. Both stocks have started to recover nicely from what has amounted to a 13 year bear market for the large-cap pharmaceutical space, and for the large-cap biotech firm.

Amgen reports tonight after the bell, with analyst consensus expecting $1.54 in earnings per share ((NYSEARCA:EPS)) on $4.0 billion in revenue for expected year-over-year growth 12% and 6% respectively.

With analyst consensus currently expecting $6.15 in eps in 2012, and $6.80 in 2013 for expected eps growth of 15% and 10% respectively (versus the S&P 500's mid-single-digit growth for 2012) paying 12(x) earnings doesn't seem outlandish given the dividend and the share repurchase plan.

Technically, AMGN peaked in Aug - Sept '05 near $86 per share and then fell all the way back to the low $40's in 2008. Since then the stock has been on a steady rise but mainly for financial reasons, not necessarily pipeline reasons.

Strong free-cash-flow generation and a fat dividend seem to be driving renewed interest in the shares. AMGN just declared its first dividend three quarters ago, and raised it already last quarter, to a payout that is about 20% of eps.

AMGN has about $20 billion in cash on the balance sheet with about the same amount of long-term debt, but cash flow from operations is now about $5 billion per year, and free-cash-flow is $4 billion, most of which seems dedicated to share repo's and the dividend.

Merck reports tomorrow morning before the bell with analyst consensus looking for $1.01 on $12.1 billion in revenues for expected year-over-year growth of 6% and flat respectively.

Like AMGN, MRK has been increasing dividends (3.9% yield) and repurchasing stock, as the large-cap pharma giant is a mid-single-digit secular grower with low-single-digit expected revenue growth for the foreseeable future.

Current eps consensus for MRK is looking for $3.82 in 2012 and $3.73 in 2013 for expected eps growth this year and next of 1% and -1% respectively, which hardly justifies the move in the stock this year, +5.5% not including the dividend.

While AMGN's growth prospects look a little better than MRK's, it is the bigger picture around large-cap pharma that is more interesting:

1.) Investor expectations are low - Most institutional investors seems to be expecting mid-to-high single digit growth from the large-cap pharma, bio and healthcare names;

2.) Technicals have improved - a lot of healthcare names are starting to outperform;

3.) Sentiment seems pretty dour - the pharma and l/c biotech names still seem unwanted despite the performance this year, but that could be changing.

Since the stocks have done so poorly for so long, we are starting to see proactive management at each company cutting expenses, spinning-off dormant divisions, making strategic acquisitions, all of which improves shareholder returns.

We think both AMGN and MRK are technically extended here and need a pullback, but we don't usually buy in front of earnings anyway. The large-cap pharma and biotech names could be exiting a long-term bear market, 13 years now from their 1999 peak.

Put them on your radar screen, and watch the earnings reports.

Disclosure: I am long MRK, AMGN.

Source: Amgen, Merck Earnings Previews: Healthcare Giants Awaken After Long Bear Market

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