Amgen (AMGN) Earnings Watch: Buy or Sell?

Pharmaceutical major Amgen Inc. (AMGN) is scheduled to report its third-quarter earnings on October 31. In this piece, I have discussed why it could be wise to buy the stock now.

Wall Street expects a year-over-year decline in earnings on higher revenues when AMGN reports results for the quarter ended September 30, 2023. While the company’s revenue is expected to increase 4.5% year-over-year to $6.95 billion, its EPS is expected to decline 0.4% to $4.68.

The company has a solid earnings history, having beaten the consensus estimate in three of the trailing four quarters. Its topline growth in the third quarter is expected to have been driven by the strong volume growth of its products, including Repatha, Prolia, and cancer drug Blincyto.

Additionally, the company benefits from developing and commercializing its Humira biosimilar, Amgevita, and the integration of OTEZLA, which has bolstered its inflammation portfolio. Its Inflammation portfolio, which includes TEZSPIRE, TAVNEOS, and OTEZLA, is also expected to have boosted its topline in the third quarter.

Earlier in April, the company won a patent appeal on OTEZLA, wherein a permanent injunction prohibited Sandoz and Zydus from making, using, selling, offering to sell, or importing each of their generic versions of OTEZLA until February 2028.

During the second quarter, the Thousand Oaks, California-based company had guided for non-GAAP EPS of between $17.80 and $18.80 in fiscal 2023. On October 6, 2023, AMGN announced the completion of the pending acquisition of Horizon Therapeutics plc. The transaction had run into trouble before as the U.S. Federal Trade Commission (FTC) had raised antitrust concerns.

However, the transaction got the green light after the U.S. FTC said last month that it reached a proposed consent order with AMGN to address the “potential competitive harm” that could result from the merger deal. The Horizon deal is expected to be top- and bottom-line accretive for AMGN.

AMGN’s autoimmune portfolio will get a boost with the addition of Tepezza for thyroid eye disease, Krystexxa for gout and CD19-targeted Uplizna. All these drugs are yet to reach their peak sales potential, which is excellent news for AMGN. Leerink Partners analyst David Risinger upgraded AMGN to an ‘outperform’ from ‘market perform.’ He also boosted his price target on the stock to $318 from $267.

He said, “Our upgrade is both a multiple-expansion and earnings-upside call. We expect the price-earnings multiple to expand due to accelerating pipeline news-flow, including oncology, obesity, and cardiovascular disease. Most major pipeline candidates have the potential to launch late-decade.”

AMGN’s stock has gained 10.8% over the past three months and declined 2.1% over the past year to close the last trading session at $261.57.

Here’s what could influence AMGN’s performance in the upcoming months:

Robust Financials

AMGN’s total revenues for the second quarter ended June 30, 2023, increased 5.9% year-over-year to $6.99 billion. Its non-GAAP operating income rose 5.4% over the prior-year quarter to $3.52 billion. The company’s non-GAAP net income increased 7.5% year-over-year to $2.68 billion. Also, its non-GAAP EPS came in at $5, representing an increase of 7.5% year-over-year.

In addition, its cash and cash equivalents rose 558.2% over the prior-year quarter to $34.25 billion at the end of the period. Furthermore, its free cash flow increased 127.9% year-over-year to $3.84 billion.

Favorable Analyst Estimates

Analysts expect AMGN’s EPS for fiscal 2023 and 2024 to increase 3.3% and 8.7% year-over-year to $18.26 and $19.86. Its fiscal 2023 and 2024 revenue is expected to increase 4.6% and 14.2% year-over-year to $27.54 billion and $31.46 billion.

Mixed Valuation

In terms of forward non-GAAP P/E, AMGN’s 14.32x is 17.9% lower than the 17.44x industry average. Its 10.52x forward EV/EBITDA is 8.9% lower than the 11.54x industry average. Likewise, its 12.76x forward EV/EBIT is 15.4% lower than the 15.07x industry average.

On the other hand, in terms of forward EV/Sales, AMGN’s 6.07x is 99.3% higher than the 3.05x industry average. Likewise, its 5.08x forward Price/Sales is 54.6% higher than the 3.29x industry average. Its 18.96x forward Price/Book is 745.4% higher than the 2.24x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, AMGN’s 74.29% is 33.5% higher than the 55.67% industry average. Likewise, its 51.78% trailing-12-month EBITDA margin is 891.7% higher than the industry average of 5.22%. Furthermore, the stock’s 37.82% trailing-12-month levered FCF margin is considerably higher than the industry average of 0.45%.

Solid Historical Growth

AMGN’s revenue has grown at a 3% CAGR over the past three years and a 2.8% CAGR over the past five years. Its EBITDA has grown at a 4.3% CAGR over the past three years. Its net income and levered FCF have grown at 3% and 8.9% CAGRs over the past three years.

POWR Ratings Show Promise

AMGN has an overall A rating, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMGN has an A grade for Quality, consistent with its high profitability. It has a B grade for Stability, in sync with its 0.58 beta.

Its favorable analyst estimates justify its B grade for Sentiment.

AMGN is ranked #4 out of 357 stocks in the Biotech industry. Click here to access AMGN’s Growth, Value, and Momentum ratings.

Bottom Line

Although AMGN’s EPS is expected to miss the consensus estimates, its revenue is expected to grow, driven by volume growth across its products. With the completion of the acquisition of Horizon Therapeutics, AMGN is adding some strong products to its autoimmune portfolio. As a result of this acquisition, AMGN’s revenue and earnings are expected to get a boost next year.

Given this favorable backdrop and its robust financials, favorable analyst estimates, solid historical growth, and high profitability, it could be wise to buy the stock now.

How Does Amgen Inc. (AMGN) Stack Up Against Its Peers?

While AMGN has an overall grade of A, equating to a Strong Buy rating, you may also check out these other A (Strong Buy) or B (Buy)-rated stocks within the Biotech industry: Gilead Sciences, Inc. (GILD), Jazz Pharmaceuticals plc (JAZZ), and Alkermes plc (ALKS). For exploring more Biotech stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

AMGN shares were trading at $263.75 per share on Monday morning, up $2.18 (+0.83%). Year-to-date, AMGN has gained 3.09%, versus a 9.25% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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