As I worked through the company’s most recent annual financial statements, I was awe struck with the amount of taxes the company paid in FY17. Then I remembered the repatriation tax which is based on the amount of foreign earnings company’s deferred from US income taxes. In the case of Amgen, the tax bill total was $7.3B. Granted they will get $1.2B back, but I have to go with what is and not what may be.
The repatriation taxes had a huge impact the company’s earnings, increasing the y-o-y tax bill by 405% and decreasing earnings by 71%. The decrease in earnings of course slammed the company’s valuations, with a decrease of 55% in free cash flow leading the way. Hopefully folks will refrain from publicly castigating me for not making allowances for this one time tax bill in my valuations, but had I done that, that would make earnings Pro Forma earnings and anyone that was invested during the late 1990s knows where that led. In the end, the numbers are the numbers, and all I can offer is read ‘em and weep.
So what’s this deal? My short-term (3-6 week hold) target price for the stock is $195.29, with an initial trailing stop at $183.87. My current future target price for the stock (a 5 year hold) is $351, which is an average annual return of 18%. A prior five year hold of the stock would have returned an average of 21% per year. As is always the case, please remember that any investment has the potential for loss and that past performance is no guarantee of future results.