Amgen: Does Strong Pipeline Portfolio Outweigh High Debt Level?

Amgen, Inc. (AMGN) is one of the world’s leading biotechnology companies, engaged in the discovery, development, manufacture, and marketing of human therapeutics. It primarily focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neuroscience. Amgen Inc. was founded in 1980 and is headquartered in California.

I am bullish on AMGN stock. Despite the fact that the biotechnology firm has a high level of debt, profitability is strong, the dividend yield is attractive, and several valuation metrics argue in favor of a value-oriented stock pick now. Amgen underperformed the Nasdaq index in 2021, but in 2022 it has gained nearly 2%, showing strength compared to a broader sluggish performance of the U.S stock market.

AMGN stock can be considered among the top Dividend Stocks and its upcoming earnings should be monitored as a key driver of momentum.

Amgen Business News

Amgen has lately several important news related to its pipeline portfolio. The firm announced that “LUMAKRAS® (sotorasib) has been approved in Japan for the treatment of KRAS G12C-mutated positive, unresectable, advanced and/or recurrent non-small cell lung cancer (NSCLC) that has progressed after systemic anticancer therapy.”

Additionally, Amgen said that its asthma drug, TEZSPIRE, is now available for shipment to wholesalers in the U.S. That announcement follows the December 17, 2021 FDA approval of the drug for patients with severe asthma who are aged 12 and older.

Moreover, on January 20, 2022, Amgen announced conditional marketing authorization by the European Commission (EC) for LUMYKRAS® (sotorasib). The drug will treat adults with “advanced non-small cell lung cancer (NSCLC) with KRAS G12C mutation and who have progressed after at least one prior line of systemic therapy.”

Q3 2021 Earnings: Mixed, Long-term Growth in Focus

In Q3 2021, Amgen reported EPS GAAP of $3.31, a miss by -$0.13. It also reported revenue of $6.71 billion, a beat by $15.60 million.

The company said its pipeline is advancing rapidly and is well-positioned to achieve long-term growth. Year-over-year sales grew 4% and there have been record quarterly sales for eight of its products, like Evenity, Kyprolis, and Xgeva. Also on a positive note, Free Cash Flow of $2.2 billion was generated in Q3 2021.

Fundamentals – Risks

The main risk for Amgen is its high level of debt. As per the latest quarter, the D/E ratio of 4.05 is too high. Amgen had $12.9 billion of cash and investments on its balance sheet and $37.6 billion of debt outstanding during Q3 2021. Having a lot of debt is a severe problem, but simultaneously having positive and strong operating cash flows and free cash flows can mitigate the problem.

Indeed, Amgen has a history of providing strong cash flows. The ratio of Net Operating Cash Flow / Sales in Q3 2021 was 36.03%. Net income on a quarterly basis grew 306.03% to $1.88 billion.

In the first nine months of 2021, Amgen generated a cumulative free cash flow of $5.87 billion. Amgen Inc. has shown predictable revenue and earnings growth and its stock dividend yield is close to a 10-year high. The expected EPS growth for the next 3–5-year period is 8.43%.

The liquidity does not raise concerns and gross margin continues to be very high, at 75.60% on a TTM basis. AMGN stock earnings were a beat in seven out of the eight past quarters.

Additionally, the dividend yield of 3.15% as of February 6, 2022, is very attractive, having a 10% year-over-year increase in Q3 2021.

I also like that Amgen has increased its share repurchases to $1.1 billion in Q3 2021 compared to $0.8 billion in Q3 2020.

Valuation

AMGN stock seems to be relatively expensive based on its PEG Ratio (2.2x), while its PE Ratio (22.3x) is in line with the U.S. Biotechs industry average.

However, looking at the forward valuation, the stock has a P/E GAAP (FWD) ratio of 22.07, a Price/Sales (FWD) ratio of 4.81, and a Price/Cash Flow (FWD) ratio of 14.54. The Healthcare Sector has somewhat higher median values of 27.77, 4.83, and 18.37 for P/E, Price/Sales, and Price/Cash Flow ratios respectively.

Overall, AMGN stock seems a value play, considering forward valuation.

Wall Street’s Take

Amgen has a Moderate Buy consensus, based on three Buys and seven Hold ratings. The average Amgen price target of $238.67 represents 7.46% upside potential.

Conclusion

Amgen has not moved much in 2021 but shows some strength in 2022. Despite its large level of debt, it has an attractive dividend yield, strong profitability, and share repurchases. There is a robust pipeline that can support sales growth and valuation supports value.

Furthermore, in the risk factors that Amgen released to the SEC, as outlined on TipRanks‘ Risk Factors page, there are only two AMGN Financial risks listed, none of which is debt. That should ease investors’ concerns about Amgen’s high debt level.

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