The background of the company with a lifecycle analysis
Amgen is a worldwide biotechnology company that develops and distributes medicines that treat millions of seriously ill patients. They were early pioneers starting in 1980, and have grown to be the world’s largest independent biotech headquartered out of Thousand Oaks, California. They currently have a dozen successful FDA approved and profitable drugs (1). Amgen went public in 1984 and currently trade on the NASDAQ under the symbol AMGN. Amgen is officially listed under the Healthcare sector and further classified under the Biotechnology industry (2). They have experienced unprecedented organic growth but also acquired several other ...view middle of the document...
In this case, Amgen pleaded guilty and paid large fines to avoid criminal and civil liability.
An analysis of Return on Equity
A direct competitor with Amgen is TEVA , we can evaluate these two to get a better feel on how AMGN is handling operations per its return on equity ratio. TEVA does have a smaller market cap, but each share the same market in developing leading pharmaceuticals for our future. One non ratio item that stuck out was the amount of employees, AMGEN has 17,900 whereas TEVA has 43,000 with similar revenues and smaller market cap. This is important as well, as it says a lot about the people talent in the organization.
Amgen's ROE is 23.18% which is a strong compared to TEVA's 12.01% which shows AMGN's superiority in generating revenue for its shareholders. Another factor that I deem important aside from dividends is net income and growth potential. AMGN has a positive 11% quarterly growth earning 5.71B, where TEVA'a growth is negative with a report of 2.76B. Just from pursing a few of these numbers, TEVA needs a major restructuring dropping half of their unproductive
Net Profit Margin
workforce to become competitive in this market.
To attempt to find an intrinsic value, the non-constant model had to be used as the calculations for DDM and FCFF were negative since the dividend growth rate was higher than the expected growth rate. Leveraging the spreadsheet provided, the long term growth was calculated with current dividend amounts, the results were very positive for Amgen. The intrinsic value came in at $153.45, with dividends growing from 3.16 to 4.83 over the course of 5 years. The stock had a present value of $169.26, trading at $156.10 on 6/15/2015. Based on dividend growth, purchasing Amgen public shares now for a hold over many years seems like a great opportunity. As stated earlier, my FCFF calculation was negative, but during the course of calculating required variables offered insights over the past three years. Substantial progress have been made in controlling their effective tax rate, growth in sales, and vast growth in net working capital. In 2012, they reported 19 billion; they have grown to just under 26 billion in three years.
From a financial risk standpoint, Amgen comes in at a very solid 7.46% debt to capitalization ratio calculated from my post in the class discussion. According to a recent study from January 2014(4), the pharma industry as an average maintains around a 33% ratio for comparison. From an investment standpoint, Amgen is position well with its other pharmaceutical companies in this area. One concern is the stock price has appreciated just below 60% this year and buying now increases the chances of getting caught in a stock pullback from any negative news releases. Even though it is a strong company, stock prices do not always reflect reality, and any large upswings tend to be followed by a...