Is Amgen Stock Fully Valued After A 17% Rise In A Month?

Amgen stock (NASDAQ: AMGN) has seen a 17% rise in a month, outperforming the broader S&P500 index, up 1%. The recent rise can be attributed to its upbeat Q2 results. The company reported revenues of $7.0 billion, up 6% y-o-y, faring better than the consensus estimate of $6.7 billion. Also, its bottom line of $5.00 on a per share and adjusted basis was comfortably above the $4.46 consensus estimate. Adjusted operating margin contracted about 50 bps to 52.6% in the quarter, partly due to higher R&D costs.

Interestingly, AMGN stock had a Sharpe Ratio of 0.4 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

If we look at the longer term, AMGN stock is up 16% from levels seen in late 2021, faring better than the S&P 500 index, down around 6%. This 16% rise for Amgen stock since late 2021 can be attributed to 1. the company’s P/S ratio expanding 10% to 5.3x revenues vs. 4.8x in 2021, 2. a 3.4% fall in its total shares outstanding to 535 million, and 3. Amgen’s revenue growth of 2,3% to $27 billion over the last twelve months, compared to $26 billion in 2021. This has meant that the company’s revenue per share metric has risen 6% to $49.70 now, compared to $46.90 in 2021—our dashboard on Why Amgen Stock Moved has more details.

Amgen’s expansion of some of its drugs, including Prolia, Otezla, Tezspire, and Repatha, is driving its revenue growth, while some of the older drugs, such as Enbrel and Neulasta, are seeing a y-o-y decline in sales. Enbrel – the rheumatoid arthritis and plaque psoriasis drug, is Amgen’s top-selling product. However, the company has seen the drug’s sales fall to $4.1 billion in 2022, compared to $5.4 billion in 2017. Although Enbrel’s market exclusivity is still far out (2029), it faces increased competition from other companies’ drugs, including  AbbVie’s Rinvoq, Pfizer’s Zeljanz, and Johnson & Johnson’s Stelara. Amgen launched a biosimilar – Amjevita – for AbbVie’s Humira. This biosimilar saw a 29% y-o-y growth in sales to $150 million in Q2.

Amgen is eyeing inorganic growth to boost its sales and pipeline. Last year, it acquired ChemoCentryx in a $4 billion deal, giving it Tavneos – a drug approved for the treatment of anti-neutrophil cytoplasmic antibody-associated (ANCA) vasculitis with potential peak sales of a little over $1 billion. Amgen plans to close its $28 billion Horizon Therapeutics acquisition in December this year. Horizon has two fast-growing drugs, the thyroid eye disease treatment Tepezza and the gout treatment, Krystexxa, with a combined peak sales estimate of over $5 billion. This acquisition will give Amgen ammunition to combat the competition for Enbrel.

The company expects its 2023 sales to be around $27 billion and adjusted earnings to be $18.30 per share at the mid-point of the provided range. With the Horizon acquisition closing toward the end of this year, Amgen will see a jump in 2024 sales, given that Horizon’s last twelve-month sales were $3.6 billion. Looking at valuation, AMGN stock looks fully priced. At its current level of $262, AMGN is trading at 5.2x sales, compared to its last five-year average of 5.1x. Our Amgen Valuation Ratios Comparison dashboard has more details.

[1] Month-to-date and year-to-date as of 8/11/2023
[2] Cumulative total returns since the end of 2016

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