Can This Company Cure an Investor’s Portfolio?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the 2012 year draws to a close, I would like to pinpoint a biotechnology giant, which discovers, develops, manufactures, and market medicines for illnesses, and focuses on human therapeutics, Amgen (NASDAQ: AMGN).

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Strengths:

  • Solid Revenue Growth: In 2006, Amgen reported revenue of $14.3 billion; in 2011, the company announced revenue of $15.6 billion, representing solid 1.76% year over year annual growth; this trend of slow and steady growth is highly anticipated to sustain into the future with projections placing 2015 revenue at $18.0 billion

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  • Institutional Vote of Confidence: 81% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future.
  • Reasonable Valuation: Amgen currently carries a price to earnings ratio of 15.59, a price to book ratio of 3.64, and a price to sales ratio of 4.29, a reasonable valuation for a company of Amgen’s size and growth prospects.
  • Comfortable Margins: Amgen currently possesses a net profit margin of 23.47%, displaying a company that is strong and profitable.
  • Dividend: At the moment Amgen pays out quarterly dividends of $0.47, which annualized results in a yield of 2.16%.
  • Magnitude and Diversification: Amgen is not a micro-cap biotech, the company is valued at $66.88 billion, and does not rely on one drug to produce their entire revenue stream, Amgen possesses a portfolio of 20 approved drugs.

Weaknesses:

  • Debt: Currently, Amgen possesses about $24.02 billion of debt on their balance sheets, a major downside to the business

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  • Massive and Growing Operating Expenses: Amgen employs 17,500, and possesses major operating expenses related to running a business of its size, however over the past 10 years operating expenses have outgrown gross profits, a troubling sign.

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  • Recent Mishap: In 2010, Amgen reported earnings per share of $4.79; in 2011, the company announced earnings per share of $4.04, representing a 15.66% decline in earnings, however earnings are expected to return to growth in 2012, with EPS reaching $5.93.

Opportunities:

  • Pipeline: According to the company’s 2011 annual report, Amgen has 20 drugs approved, 12 drugs in phase 3, 13 drugs in phase 2, and 18 drugs in phase 1, providing Amgen with a healthy pipeline full of opportunity.
  • Dividend Growth: Since implementing their dividend program in 2011, Amgen has consistently raised their payouts, and this trend is highly anticipated to continue into the future.

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  • Acquisitions: In July 2012, Amgen acquired KAI Pharmaceuticals, and further acquisitions in the future are a strong possibility and should fuel growth.
  • New Discoveries: In 2011, Amgen poured $3.2 billion into research and development, and with this investment comes the hope of new discoveries which could over time lead to revenue producing drugs.

Threats:

  • Competition: The biotechnology industry is very competitive, and Amgen battles with some of the largest and most powerful companies in the world, which could hurt profits.
  • Generics: Generics are the nightmare of every biotechnology company in the world, and can significantly hurt Amgen’s revenue growth and profits, as just recently the U.S. Food and Drug Administration approved a Teva generic for Amgen’s Neupogen.
  • Government Regulation: Back in 2009, Obama proposed a budget that included a proposal to set up a regulatory pathway for companies to create generic versions of biotechnology drugs, which could have devastated Amgen, and further regulation proposals as Washington attempts to keep America from falling off the fiscal cliff could hurt Amgen’s business.
  • Sluggish Economic Landscape: When the economy is in a state of such uncertainty and stagnation as it is now, many people simply do not have the money to pay for Amgen’s pricy drugs, and the collapse of Medicare could contribute to the damage done to Amgen’s business in this shaky economic landscape.

Competition:

Major publically traded competitors of Amgen include GlaxoSmithKline (NYSE: GSK), Pfizer (NYSE: PFE), Johnson & Johnson (NYSE: JNJ), and Merck & Co. (NYSE: MRK). GlaxoSmithKline is also engaged in the discovery, development, manufacturing, and marketing of pharmaceutical products, is valued at $107.56 billion, and pays out a dividend yielding 5.31%. Pfizer is a global biopharmaceutical company and is valued at $184.65 billion, while paying out a dividend yielding 3.83%. Johnson & Johnson holds a segment operating in the pharmaceutical industry, is valued at $194.74 billion, and pays out a dividend yielding 3.47%. Merck is also a global health company, is valued at $126.22 billion, and pays out a dividend yielding 4.14%.

The Foolish Bottom Line

Amgen is a major diversified pharmaceutical company with a portfolio of approved drugs and dozens more awaiting approval. Amgen has recently implemented a major dividend program and possesses steady and solid revenue growth. The company is among the most widely held by institutional investors, however faces several substantial obstacles going into the future. All in all, Amgen is an incredible company with a solid future, and is a perfect mix of stability, dividends, and growth, and is a great addition to any long-term portfolio.  


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend GlaxoSmithKline and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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