Linked here is a detailed quantitative analysis of Amgen, Inc. (O). Below are some highlights from the above linked analysis:
Company Description: Amgen Inc. is one of the world's leading biotech companies with major treatments for anemia, neutropenia, rheumatoid and psoriatic arthritis, psoriasis, cancer and osteoporosis.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
AMGN is trading at a discount to only 1.) above. When also considering the NPV MMA Differential, the stock is trading at a 15.0% discount to its calculated fair value of $211.92. AMGN earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
AMGN earned one Star in this section for 3.) above. AMGN earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2007-2010, 2008-2011, 2009-2012, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for 7 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
AMGN earned a Star in this section for its NPV MMA Diff. of the $5,636. This amount is in excess of the $2,800 target I look for in a stock that has increased dividends as long as AMGN has. If AMGN grows its dividend at 15.0% per year, it will take 1 years to equal a MMA yielding an estimated 20-year average rate of 2.79%. AMGN earned a check for the Key Metric 'Years to >MMA' since its 1 years is less than the 5 year target.
Peers: The company's peer group includes: The Biogen Inc. (BIIB) with a 0.0% yield, Celgene Corporation (CELG) with a 0.0% yield and Gilead Sciences, Inc. (GILD) with a 1.6% yield.
Conclusion: AMGN earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks AMGN as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $239.35 before AMGN's NPV MMA Differential decreased to the $2,800 minimum that I look for in a stock with 7 years of consecutive dividend increases. At that price the stock would yield 1.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,800 NPV MMA Differential, the calculated rate is 12.5%. This dividend growth rate is lower than the 15.0% used in this analysis, thus providing a slight margin of safety. AMGN has a risk rating of 2.00 which classifies it as a Medium risk stock.
AMGN competes in highly competitive and regulated markets, subject to changes in government reimbursement policies and drug safety oversight. 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 repurchases, cash dividends and acquisitions.
The company's debt to total capital of 54% is slightly above my 45% maximum, while its free cash flow payout of 36% is well below my 60% maximum. The stock is currently trading at a 17.6% discount to my calculated fair value of $211.92. With a dividend growth rate of 15%, this is a company that I am evaluating for inclusion in my High Dividend Growth Portfolio.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in AMGN (0.0% of my Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio holdings here.
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Tags: AMGN, BIIB, CELG, GILD,
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