The stock price ofAmgen(NASDAQ: AMGN) has seen a 5% drop over the last five trading days. The decline can be attributed to profit taking before the U.S. FDA ruled out its verdict on the company’s lung cancer candidate – Lumakras. Late last week, the regulator approved the drug for a specific type of treatment of patients with lung cancer. AMGN stock was up 1.1% in Friday’s trading session (May 28) following the announcement.
Given that AMGN stock has fallen 5.2% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? We believe that the stock will rebound in the near term, given the recent U.S. FDA approval. The patient pool is estimated to be over 25,000 annually for the lung cancer with the particular gene mutation the drug has been approved for, while there is opportunity for the company to look at other cancer types as well.
Looking forward, using the recent trend (5.2% fall in a week) and ten years of historical stock data, the Trefis AI engine finds that AMGN stock will likely move higher over the next one month (twenty-one trading days).
According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for AMGN stock average around 3% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days), in-line with the 3.1% expected return for the S&P500 over the next month (twenty-one trading days). However, given the new drug approval, we believe the rally will likely be much higher than just 3%.
Some Fun Scenarios, FAQs & Making Sense of Amgen Stock Movements:
Question 1: Is the average return for Amgen stock higher after a drop?
Answer: Consider two situations,
Case 1: Amgen stock drops by -5% or more in a week
Case 2: Amgen stock rises by 5% or more in a week
Is the average return for Amgen stock higher over the subsequent month after Case 1 or Case 2?
AMGN stock fares about the same in both Cases, with an average return of 2.9% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 2.9% for Case 2.
Try the Trefis machine learning engine above to see for yourself how Amgen stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
Answer: If you buy and hold Amgen stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For AMGN stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
You can try the engine to see what this table looks like for Amgen after a larger loss over the last week, month, or quarter.
Question 3: What about the average return after a rise if you wait for a while?
Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.
[Updated: 12/4/2020] AMGN Stock Looks Undervalued
Amgen stock (NASDAQ NDAQ : AMGN) is down 5% since the start of the year and it has gained around 22% from its March lows. We believe that Amgen could offer an upside in the near term, as the company’s revenues in the last three quarters have grown by 9%, primarily aided by its new drug Otezla. This is likely to bolster the earnings growth rate of the company in the near term – leading to stock price growth.
AMGN stock has rallied from $186 to $227 off the recent bottom compared to the S&P which moved 64% over the same time period. The underperformance of Amgen can be attributed to its disappointing results in a key final-phase clinical trial for a heart treatment it was developing in collaboration with Cytokinetics and Servier. This sent Amgen stock down 15% since the first week of October. Looking at a wider time horizon, AMGN stock is up 28% from levels seen in early 2018, over two years ago. After the recent correction, and given the fact the stock is up just 22% since March lows, we feel that the company’s stock has more room for growth, as it has benefited from the expansion of its new drugs and its valuation implies it has further to go. Our dashboard ‘Buy Or Sell Amgen Stock provides the key numbers behind our thinking, and we explain more below.
Some of the stock price rise over the last 2 years is justified by the roughly 2.2% growth seen in Amgen’s revenues from $22.8 billion in 2017 to $23.4 billion in 2019, and the figure is $25.0 billion for the last 4 quarters. This clubbed with Net Margin expansion of 288% from 8.7% to 33.6% meant that earnings grew 296%. On a per share basis, earnings were up 378% from $2.71 to $12.96, led by a 17% decline in total shares outstanding due to share repurchases. These are GAAP numbers and 2017 Net Margin was depressed due to a one-time charge of over $8 billion given the changes in the US tax laws. If we look at Non-GAAP numbers, Net Margins actually declined by 4.5% from 40.5% to 38.6% over the same period. Non-GAAP EPS growth was still positive from $12.58 to $14.82, primarily due to share repurchases. Amgen spent a large $29 billion on share repurchases between 2017 and 2019.
Finally, Amgen’s P/E ratio (based on Non-GAAP trailing earnings) expanded over the recent years, given the rise in its earnings. It grew from 14x in 2017 to 16x in 2019. While the company’s P/E has now decreased to 15x trailing earnings, it could see further expansion given the benefit to its business from the expansion of new drugs as we discuss below, and higher revenues and earnings growth in 2020 and beyond.
How Is Coronavirus Impacting AMGN Stock?
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, impacting the overall pharmaceuticals sales. That said, Amgen is seeing market share gains for its new drugs, such as Otezla and Repatha, among others. Otezla is used for the treatment of plaque psoriasis, and it garnered sales of $1.6 billion thus far in 2020. Its peak sales are estimated to be north of $3 billion. Repatha, which is used to treat patients with high cholesterol, garnered $634 million in the first nine months of 2020, reflecting a strong 38% y-o-y growth. These drugs will likely drive the sales growth for Amgen in the coming years, as its older drugs, such as Enbrel, which garnered over $5 billion in sales last year and $3.7 billion thus far in 2020, will likely grow at a slower pace. Other drugs that will likely see 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 may see possible expansion for its multiple myeloma drug, Kyprolis, and its cardiovascular drug, Omecamtiv mecarbil.
Looking at the broader economy, the actual recovery and its timing hinge on the containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. 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 become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. At levels near $225, AMGN stock is trading at 13x its 2021 estimated adjusted earnings of $17.00, compared to levels of 16x seen as recently as late 2019, implying the stock still has some room for growth.
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