A detailed quantitative analysis by Amgen, Inc. (AMGN) is linked here. Below are some highlights from the analysis linked above:
Company description: Amgen Inc. is one of the world’s leading biotech companies with primary treatments for anemia, neutropenia, rheumatoid and psoriatic arthritis, psoriasis, cancer and osteoporosis.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
AMGN trades at a discount of only 3.) above. Since the material book value of AMGN is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 15.2% on the calculated fair value of $ 220.64. AMGN did not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
AMGN received two stars in this section for 1.) and 3.) above. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. AMGN received a star for an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for eleven consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 1,811 that’s below the $ 2,400 target I’m looking for for a stock that has been increasing dividends as long as AMGN has done so. The stock’s current return of 2.77% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: The Biogen Inc. (BIIB) with a yield of 0.0% and Gilead Sciences, Inc. (GILD) with a yield of 4.2%.
Conclusion: AMGN did not deserve any stars in the Fair Value area, earned two stars in the Dividend Analytical Data area and did not deserve any stars for a total of two stars in the Dividend Income vs. MMA area. This means that AMGN is quantitatively called 2 star weak Warehouse.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to drop to $ 225.31 before AMGN’s NPV MMA differential rose to the minimum of $ 2,400 that I’m looking for on a stock with 11 years of consecutive dividend increases. At that price, the stock would generate a 3.1% return.
Resetting the D4L-PreScreen.xls Model and solution for the dividend growth rate required to achieve the targeted MMA differential of $ 2,400, the calculated rate is 11.1%. This dividend growth rate is higher than the 10.0% used in this analysis, so there is no margin of safety. AMGN has one Risk assessment of 2.00, which it classifies as a medium risk stock.
AMGN competes in highly competitive and regulated markets, subject to changes in government reimbursement policies and drug safety monitoring. These risks are mitigated by AMGN’s diversified product line and the company’s ability to generate strong cash flows that can be used for share buybacks, cash dividends and acquisitions.
The company’s debt to total capital of 78% (versus 77%) is above my maximum of 45%, while the free cash flow payout of 42% (versus 43%) is well below my maximum of 60%. The stock currently trades at a premium to my calculated fair value of $ 220.64.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks you should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in AMGN (0.0% of my dividend growth stock portfolio).
On the subject of matching items:
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Tags: AMGN, BIIB, GILD,