Is There More Upside For Amgen At $235?

by Trefis Team
Rate   |   votes   |   Share

Despite a 27% rise since the March 23 lows of this year, at the current price of around $235 per share we believe Amgen Inc. stock (NASDAQ:AMGN) has more room for growth. Amgen stock has rallied from $186 to $236 off the recent bottom, underperforming the S&P which moved 39%. Amgen stock is also up 46% from levels seen in early 2018, two years ago.

Amgen stock has fully recovered to the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. Despite the rise since the March 23 lows, we feel that the company’s stock still has potential, primarily led by its new drugs, which are expected to drive revenue growth for the company going forward.

Amgen’s fundamentals didn’t improve much over the last 2 years. Its revenues were up a mere 2%, while net income margin declined 4.5%. That said, the company’s earnings grew 18% primarily led by share repurchases. Given the earnings growth over recent years, its PE multiple has expanded. We believe the stock is likely to see more upside despite the recent rally and the potential weakness from lockdowns driven by the Covid outbreak, as the company banks on new drugs for future growth. Our dashboard, ‘What Factors Drove 46% Change in Amgen Stock between 2017 and now?‘, has the underlying numbers.

Amgen’s PE multiple increased from 13x in 2017 to 16x in 2019. While the company’s PE is still at 16x, it could expand further subject to growth in the sales of its new drugs, which we discuss in the section below.

So what’s the likely trigger and timing for further upside?

The global spread of Coronavirus has meant there just aren’t many people visiting doctors for non-emergency cases, and several types of elective surgeries are being postponed, resulting in lower prescriptions being issued. We believe Amgen’s Q2 results in July will confirm the hit to its revenue. That said, the growth in Amgen stock over recent weeks is primarily about its new drugs, Otezla, Repatha, and Evenity. Otezla is used for the treatment of plaque psoriasis, and it garnered sales of $479 million in Q1 2020. Its peak sales are estimated to be north of $3 billion. Repatha, which is used to treat patients with high cholesterol, garnered $229 million in Q1, reflecting a strong 61% y-o-y growth. Evenity, which is used for the treatment of osteoporosis, is also seeing strong sales, and its peak is estimated to be over $500 million. These drugs will likely drive the sales for Amgen in the coming years, as its older drugs, such as Enbrel, which garnered over $5 billion in sales last year, will likely grow at a slower pace. Other drugs that will likely see strong growth are Prolia and Xgeva, which could garner $3.5 billion in peak sales each, compared to the 2019 sales of $2.7 billion and $1.9 billion, respectively.

Additionally, the company’s strong late stage pipeline with possible expansion for its multiple myeloma drug, Kyprolis, and its cardiovascular drug, Omecamtiv mecarbil, which was recently granted fast track designation by the U.S. FDA. As lockdowns are lifted investors could begin to focus on the company’s performance in 2021 and onward – potentially driving Amgen stock higher over the coming months.

In the near future, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to boost market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations vs historic valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.

While Amgen looks like it can gain more, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!