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Amgen (NASDAQ:AMGN) Proves the Value of Diversification

Thursday, October 29, 2020 | Steve Anderson
Amgen (NASDAQ:AMGN) Proves the Value of Diversification

These days, biopharmaceutical companies—or virtually any medical supply operation—can just about write their own ticket, considering the pandemic that kept the world's attention for a good chunk of 2020. It's still being felt today in many places, and so anything healthcare-related pulls quite a bit of attention. One of the biggest movers in overnight trading was Amgen (NASDAQ:AMGN), who released its earnings report, which delivered a lot of torque in pulling investor interest.

A Win By Most Any Standard

The earnings report was a monster win, as Amgen posted a 12% gain in revenue year-over-year to bring in $6.423 billion. That was with something of a handicap, as much of Amgen's product line found itself caught up in that brief period where hospitals were forbidden by government mandate from doing anything that wasn't immediately related to COVID-19, or wasn't a clear emergency. Product sales were up 12% worldwide, thanks to several of Amgen's newest products, including Otezla, a psoriasis and psoriatic arthritis treatment, and MVASI, a treatment for metastatic colorectal cancer.

The good news only just started there, as earnings per share (EPS) figures were up 5% over this time last year to bring in $3.43. With revenues on the rise and weighted-average shares on the decline, the company could improve its fortunes fairly readily on a per-share basis. There was also some help with the amortization of costs from acquiring Otezla in the first place.

Given that analyst consensus was looking for $6.38 billion for revenue this quarter, it was a fairly handy win. The net income figures also proved a win, as the company brought in $2.021 billion to product $3.43 per share. That not only beat the year-ago quarter's figure of $3.27, but it also took out the analyst consensus, which was setting at $2.90 per share.

Victory Beyond the Numbers

While the numbers certainly gave Amgen a lot of boost with investors, it was far from the only gain in its favor. Just last month, the company set up arrangements with Eli Lilly (NYSE:LLY) to manufacture the coronavirus antibody treatmentthat Eli Lilly was developing, when it's actually ready to go. Lilly noted that such an arrangement would “significantly increase the supply” of such a treatment, which would potentially make Eli Lilly a force in the market against the likely substantial demand for coronavirus treatments.

Such moves allowed the company to modify its expected full-year figures, and the fact that it has full-year figures to begin with is something of an achievement, given how many companies suspended full-year guidance this year. The new full-year adjusted earnings forecast calls for between $15.80 and $16.15 per share, up from the previous range of between $15.10 and $15.75. The company also refined its revenue estimate for the year to between $25.1 and $25.5 billion, a slightly narrower picture from the previous range of $25 billion to $25.6 billion.

Good News, Bad News for Amgen's Future

There's good news and bad news going forward for Amgen. For good news, the company enjoys some deeply positive analyst outlook based on our latest research. The company has had a “buy” rating for the last six months, and though it's slipped a bit in consensus—six months ago, it held one “sell”, 11 “hold” and 16 “buy” ratings, but now, it's one “sell”, 12 “hold” and 15 “buy” ratings—the price target has jumped from six months ago too. It's gone from $244.52 to $253.64, which represents some substantial upside of its current price of $216.43 as of this writing.

The bad news, however, is that the company isn't alone in this space. Mirati Therapeutics (NASDAQ:MRTX) is gaining on Amgen's lead in the KRAS treatment market, with its own KRAS drug doing better than Amgen's in testing. That will put Mirati on a likely faster pathway to FDA approval, and give Mirati first-mover advantage in the space for fighting a condition previously thought untreatable by drugs.

So is Amgen worth a buy? Remember, it's got a lot of other irons in the fire right now; it's got treatments for arthritis, osteoporosis, certain cancers, and it's on track to manufacture a therapeutic for coronavirus. If it can get a treatment to market for MRAS eventually, so much the better. It can still get at least some of that market, and when that joins with all the others, it should make Amgen's heavily-diversified position that much more secure. It's always good to have multiple income streams, and Amgen is likely to demonstrate that principle effectively in the months ahead.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Amgen (AMGN)2.5$224.81flat2.85%18.13Buy$254.08
Eli Lilly and (LLY)2.4$147.44flat2.01%24.09Buy$168.93
Mirati Therapeutics (MRTX)1.0$232.54flatN/A-30.20Buy$215.36
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