Amgen Inc. (AMGN) raises dividend 15% & offers a compelling valuation

Amgen’s (NYSE:AMGN) dividend was increased by a stellar 15% on December 21st. Its overall yield is 3.15%. The firm started paying a dividend in 2011.

Amgen is the world’s largest independent biotechnology firm. The healthcare company develops and manufactures a multitude of products for health ailments. Amgen is a true leaders in its field of biotechnology-based human therapeutics. The largest products for the firm include red blood cell boosters Epogen and Aranesp, immune system boosters Neupogen and Neulasta, and Enbrel for inflammatory diseases. Amgen was founded in 1980 and is headquartered in Thousand Oaks, California.

Amgen has maintained a solid three-year growth rate of dividends of 28.6 percent. Amgen currently ranks 1st in yield within the large cap healthcare, biotechnology category. The quarterly dividend for the March payment will be $1.15 versus the prior year rate of $1.00 per share. Amgen is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on March 8, 2017, to shareholders of record at close of business on February 15, 2017. Amgen is currently priced at $146.17. Listed in the table below are the quarterly dividend payments since 2011.

Date Quarterly Dividend
2/15/2016 1.15
11/14/2016 1
8/15/2016 1
5/13/2016 1
2/11/2016 1
11/12/2015 0.79
8/13/2015 0.79
5/12/2015 0.79
2/10/2015 0.79
11/10/2014 0.61
8/12/2014 0.61
5/13/2014 0.61
2/11/2014 0.61
11/12/2013 0.47
8/14/2013 0.47
5/14/2013 0.47
2/11/2013 0.47
11/13/2012 0.36
8/14/2012 0.36
5/14/2012 0.36
2/13/2012 0.36
11/15/2011 0.28
8/16/2011 0.28

Quantitative Analysis:

We examine Amgen upon our five key criteria, which include; 

Category Value Score
Dividend Yield 3.15% 129
Dividend Growth (3 to 6 year avg) 37% 33
Forward P/E 11.74  47
S&P Financial Rating A 120
Beta  1.00  125
Total Score   454

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
3.15% 28.6% 45.6% 30.8 4.75 3.5 6.2 1.42% 3.15%

Positives;

  • Amgen maintains an investment grade credit rating and a current dividend yield (3.15%) is well above the market and at its five-year maximum.
  • Amgen has maintained a three-year growth rate of dividends of 28.6 percent.
  • Amgen’s dividend yield is above that of the S&P 500 Index.
  • Amgen maintains a beta of 1.00, on average with the market.
  • Amgen is trading below its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Amgen issued its earnings data on October 27th. The company reported $3.02 EPS for the quarter, beating the consensus estimate of $2.79 by a remarkable $0.23.  This represented an 11% increase over the earnings per share of $2.72 reported during the same time last year. It also came in above the $2.79 that Wall Street was looking for in the quarter. The firm’s revenue for Q3 of 2016 was $5.8 billion, up from $5.72 billion in last year’s Q3 results. This was slightly above estimates.  Modest sales of large biotech drug Enbrel impacted results as revenue was flat year-over-year. Amgen also expected sales of the key drug to be near flat again in 2017.  The company updated its guidance for the full year of 2016 indicating that earnings per share should be $11.40 to $11.55 for the year while revenue should come in at $22.6 billion and $22.8 billion. The earnings numbers were better than expected while the revenue line was in line.

Amgen is going through a period of transition. It primary products in biologics are now becoming vulnerable to biosimilars, the generic version of biological drugs.  Neupogen and Neulasta already have biosimilar competition in the European Union. Teva has now begun to release Granix, its branded version of Neupogen in the United States. Additionally, Novartis’ generic subsidiary Sandoz gained Food and Drug Administration approval for a biosimilar version of Neupogen as well here in the U.S.  Further competition is also on the horizon as Neulasta and Epogen biosimilars can enter the market this year as both Sandoz and Pfizer’a Hospira have product lines.  Knowing these biosimiliar trends have been in place for years, Amgen has initiated a substantial program of costs cuts along with a plethora of new drugs to offset the future revenue declines.  Amgen’s big six products produce nearly $15 billion in revenue. This large amount will decline as competition intensifies and patents expire.

The expectation is by most analysts that Amgen needs to make up $3-5 billion in revenue by 2020. The firm does have firepower. It two key new drugs including Prolia and Sensipar generated solid growth in Q3 2016, up nearly 20% each. It recently launched key new drugs Repatha and Kyprolis in the United States. And it also maintains new pipeline drugs in  bone health, nephrology, neuroscience, and anti-inflammation. Kyprolis is a key new drug and has a strong position in the multiple myeloma arena.  Repatha, indicated for the treatment of hypercholesterolemia has garnered slower growth in the U.S., but has high potential. Much of the drugs future potential is based upon the FOURIER trial. The FOURIER outcomes trial completed enrollment in June 2015 with results due in early 2017. Amgen also has Blincyto for acute lymphoblastic leukemia, Nplate for chronic immune thrombocytopenia, and Vectibix for advanced colorectal cancer. Other pipeline potential drugs include romosozumab as well as erenumab.  Amgen now has two positive Phase III trials in hand for erenumab for patients with episodic migraine.  It looks to file for approval with partner Novartis next year.  Together, these new drugs have high potential and can easily make up for the loss of revenue in older drugs. Repatha by itself, with positive outcome from the FOURIER trial, could be a $5 billion drug.

 

Amgen also is venturing into biosimilars on its own.  The firm just received approval for its biosimilar of AbbVie’s Humira.   Considering that AbbVie’s Humira generated $14 billion in revenue last year, it could be a large opportunity for Amgen. Amgen’s dividend yield stands at a stout 3.15% based on its new payout,  the largest in biotech. The company also has a cash hoard of nearly $38 billion. It would make sense in 2017 for Amgen to make another acquisition or spend additional funds for R&D.  It trades at a below-market 12.5 times next year’s earnings.

Based on the firm’s cheap valuation, high dividend yield, strong dividend growth, and investment grade rating, Amgen remains as a member of our  Top 100 Dividend Stocks at #10. 

Amgen Inc. Dividend Yield Chart (Click to enlarge)

amgn3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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