The stock has responded well, up over 40% during the period. Still the market clearly expects slower growth from Amgen, Inc. (NASDAQ:AMGN) compared to the other biotech companies and is pricing the stock below even some big pharmaceutical companies based on its discounted price/earnings ratio.
Compared to big pharma AMGN boasts solid earnings growth at a deep discount
One of the most attractively priced large-cap pharmaceuticals, Merck & Co., Inc. (NYSE:MRK) yields 3.7% and trades at a slight price/earnings ratio premium to Amgen at 13 times 2014 earnings. The company boasts a robust pipeline and the stock received a big boost from the presentation of strong early-stage clinical trial results for lambrolizumab at the American Society of Clinical Oncology meeting earlier this month. Lambrolizumab is a checkpoint inhibitor that blocks cancer cells from hiding from the body’s immune system. The company may file for regulatory approval in 2015 and the drug clearly contains blockbuster potential. As is often the case, investors rewarded the stock with a 10% move initially, but it has since drifted down to pre-announcement levels. The pipeline is exciting but the stock lacks short-term catalysts and is expected to grow earnings in the low-single digits over the next 12 months. Bristol Myers Squibb Co. (NYSE:BMY) also announced strong early-stage clinical trial results for a drug similar to Merck & Co., Inc. (NYSE:MRK)’s that harnesses the immune system to kill cancer cells. The segment is red hot to be sure. Bristol Myers Squibb Co. (NYSE:BMY) is expected to post strong earnings growth of 17.6% in the coming year and boasts a yield of around 3%. But the stock is trading at 21.1 times 2014 earnings — a premium to the market and peer group. The good news seems priced into the stock in the near term.
The bottom line
Amgen’s Bradway is rationalizing the business and has targeted $1 billion in operating efficiencies by 2015. Though 82% of sales are concentrated in five drugs, the company has created a new blockbuster franchise in osteoporosis treatments that is expected to double to $3 billion in sales. Management’s commitment to returning value to the shareholder through dividend growth and stock buybacks of 60% of adjusted net income is also noteworthy. The stock carries an attractive valuation and expected earnings growth of 12% in the next year. Add to that a promising pipeline with late-stage data on new treatments for psoriasis and cholesterol expected by 2016 and you likely have a stock that complies with Intelligent Investing Rule #1.
I’ve said it before and I’ll say it again: Buy great companies for the long-term.
Nancy Tengler owns AMGN. The Motley Fool has no position in any of the stocks mentioned. Nancy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Amgen vs. Big Pharma: It’s Amgen for the Long Term originally appeared on Fool.com is written by Nancy Tengler.
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