Amgen: I Prefer To Chase Value And Dividends

seekingalpha04-15

Amgen has a history of outperforming peers and the market due to its effective capital allocation in the pharmaceutical industry.AMGN is executing well with sales and volume growth, and has a robust ...

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href=https://seekingalpha.com/article/4683764-amgen-i-prefer-to-chase-value-and-dividends><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Amgen has a history of outperforming peers and the market due to its effective capital allocation in the pharmaceutical industry.AMGN is executing well with sales and volume growth, and has a robust ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683764-amgen-i-prefer-to-chase-value-and-dividends\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU2458330243.SGD","symbol_name":"FRANKLIN SHARIAH TECHNOLOGY \"A-H1\" (SGDHDG) 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That's why capital allocation is so important to sustaining shareholder returns, and those who can do it well tend to outperform peers and even the market itself. This brings me to Amgen (NASDAQ:AMGN), which has done well for shareholders over its history. I last covered the stock back in December of last year, noting its robust development pipeline and reasonable valuation. Since then, the stock has fallen by 4%, driven in large part by the market sell-off so far in April, as inflation continues to pressure markets. With the market continuing to chase growth stocks like Nvidia (NVDA) and AMD (AMD) at nosebleed valuations, I remain compelled to chase value names like AMGN that pay a decent yield to boot. In this article, I revisit AMGN including its recent business performance, and discuss why value and income investors may want to be opportunistic with the stock at the current valuation, so let's get started! Why AMGN? Amgen is a large biopharmaceutical company that alongside peer Genentech, now owned by Roche (OTCQX:RHHBY), was one of the pioneers in the industry. It has a diversified portfolio of drugs covering blood disorders, immunology, bone health, oncology, pulmonology, and has a growing biosimilars portfolio. AMGN has a strong track record balance both investments in its pipeline as well as capital returns to shareholders in the form of share buybacks and dividends. This, combined with strong execution, has resulted in market-beating performance over the past 10 years. As shown below, AMGN has produced a 209% total return since 2014, outpacing the 179% of the S&P 500 (SPY) as well as that of the SPDR Biotech ETF (XBI), SPDR Pharmaceuticals ETF (XPH), and close peer Roche, as shown below. AMGN Total Return Comparison (Seeking Alpha) AMGN has continued to see top-line growth, as reflected by its Q4'23 results, of which were released on Feb. 28th. This includes 20% YoY revenue growth to $8.2 billion, driven by 23% volume growth partially offset by 3% lower net selling price. It's worth noting that much of this growth was due to the closing of the Horizon Therapeutics acquisition shortly after the start of Q4 on October 26th. Excluding Horizon's sales, AMGN saw comparable revenue growth of 5% YoY, driven by 9% volume growth. This still represents an acceleration from the 4% YoY revenue growth and 11% volume growth that AMGN saw during Q3'23, when I last visited the stock. Plus, AMGN's higher revenue growth despite the slight slowdown in volumes since Q3 suggests that pricing power has improved somewhat on a sequential QoQ basis. AMGN's strong fourth quarter was driven by nine brands achieving record sales, including blockbuster drugs Repatha, EVENITY, Prolia, and BLINCYTO delivering double-digit volume growth globally, as shown below. Volume growth (including contributions from Horizon) was more pronounced in the U.S. at 26% YoY, and ex-U.S. volume grew 15%, including robust 46% growth in Asia Pacific. Investor Presentation Looking ahead, AMGN is well-positioned to benefit from expansion of its BiTE platform for BLINCYTO (treatment of leukemia) and Xaluritamig (treatment of prostate cancer), which is designed to harness the power of the immune system to treat cancer, into earlier lines of treatment. AMGN's development pipeline is also what it labels as its most diverse pipeline in company history, with promising molecules across varying stages of development in its 4 primary drug segments. This includes the pending FDA review of Tarlatamab for small-cell lung cancer, as noted during the last conference call:  In Oncology, we have a June 12 PDUFA date for the FDA to complete its priority review of Tarlatamab as a third-line treatment for small-cell lung cancer. Tarlatamab is the first bispecific T cell engager shown to be effective in addressing a major solid tumor. In this case, one for which there has been no new treatment in decades and which today has a 5-year survival rate of just 3%. We're studying Tarlatamab in earlier lines of treatment and hope over the fullness of time to be able to serve the tens of thousands of patients diagnosed with small cell lung cancer each year in the U.S. and major markets around the world.  Risks to AMGN include an increase to its net debt balance from $30.3 billion at the end of 2022 (pre-Horizon acquisition) to $54.5 billion as of the end of 2023, which results in higher interest expense. At the end of 2022, AMGN carried a safe net debt-to-EBITDA ratio of 2.2x, and I would revisit AMGN's leverage ratio at the end of 2024, as that would include a full year's EBITDA contribution from Horizon Therapeutics. Other risks include the burden of new drug development on R&D expenses and Medicare price negotiations. These risks could be offset by AMGN's growing biosimilars business, which saw sales growth accelerate to 10% YoY in Q4'23 (from 5% for the full year 2023), and the fact that Medicare drug price negotiations are currently limited to only the most widely used drugs. AMGN currently pays an appealing 3.4% yield, and the dividend is well-protected by a 46% payout ratio. It also comes with 12 consecutive years of dividend growth and a 5-year dividend CAGR of 9.8%. While AMGN has made material share buybacks in the past, it expects 2024 share buybacks to not exceed 2024 as it prioritizes debt paydown in the near term. Turning to valuation, I continue to find AMGN to be appealing at the current price of $267 with a forward PE of 13.7x, which is cheaper than the 14.8x PE from the last time I visited the stock. As shown below, AMGN has a solid track record of consistent EPS growth, and the current forward PE sits meaningfully below AMGN's normal PE of 15.4 over the past 20 years. FAST Graphs Sell-side analysts who follow the company estimate a 5-8% annual EPS growth rate in the 2025-2026 timeframe, which I believe is attainable considering the planned benefits from the Horizon acquisition and from AMGN's internal development pipeline. Considering all the above, I believe a near-term PE valuation in the 14-16x range remains viable for the stock, which represents near-term price appreciation potential combined with long-term potential for around 10% total returns, driven by the dividend yield and EPS growth. Investor Takeaway Overall, I continue to believe that AMGN is a solid long-term investment option for investors seeking exposure to the biotechnology sector. The company's strong financial performance, diverse pipeline, and promising drug developments make it an attractive choice for those looking for both growth potential and dividend income.  While there are some risks to consider, including increasing debt levels and Medicare price negotiations, I believe that AMGN's strengths and undervaluation outweigh these concerns. With a solid track record of consistent EPS growth and a history of increasing dividends, I believe AMGN could be a valuable addition to a well-balanced portfolio. I maintain a 'Buy' rating on the stock.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2427072091"}