Stock Analysis on Net

Amgen Inc. (NASDAQ:AMGN)

Present Value of Free Cash Flow to Equity (FCFE) 

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Intrinsic Stock Value (Valuation Summary)

Amgen Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 10.17%
01 FCFE0 33,035
1 FCFE1 47,832 = 33,035 × (1 + 44.79%) 43,416
2 FCFE2 62,660 = 47,832 × (1 + 31.00%) 51,623
3 FCFE3 73,442 = 62,660 × (1 + 17.21%) 54,920
4 FCFE4 75,951 = 73,442 × (1 + 3.42%) 51,552
5 FCFE5 68,071 = 75,951 × (1 + -10.38%) 41,938
5 Terminal value (TV5) 296,913 = 68,071 × (1 + -10.38%) ÷ (10.17%-10.38%) 182,924
Intrinsic value of Amgen Inc. common stock 426,372
 
Intrinsic value of Amgen Inc. common stock (per share) $795.59
Current share price $268.87

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of Amgen Inc. common stock βAMGN 0.62
 
Required rate of return on Amgen Inc. common stock3 rAMGN 10.17%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rAMGN = RF + βAMGN [E(RM) – RF]
= 4.53% + 0.62 [13.63%4.53%]
= 10.17%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Amgen Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared on common stock 4,644 4,264 4,098 3,843 3,555
Net income 6,717 6,552 5,893 7,264 7,842
Product sales 26,910 24,801 24,297 24,240 22,204
Total assets 97,154 65,121 61,165 62,948 59,707
Stockholders’ equity 6,232 3,661 6,700 9,409 9,673
Financial Ratios
Retention rate1 0.31 0.35 0.30 0.47 0.55
Profit margin2 24.96% 26.42% 24.25% 29.97% 35.32%
Asset turnover3 0.28 0.38 0.40 0.39 0.37
Financial leverage4 15.59 17.79 9.13 6.69 6.17
Averages
Retention rate 0.40
Profit margin 28.18%
Asset turnover 0.36
Financial leverage 11.07
 
FCFE growth rate (g)5 44.79%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income – Dividends declared on common stock) ÷ Net income
= (6,7174,644) ÷ 6,717
= 0.31

2 Profit margin = 100 × Net income ÷ Product sales
= 100 × 6,717 ÷ 26,910
= 24.96%

3 Asset turnover = Product sales ÷ Total assets
= 26,910 ÷ 97,154
= 0.28

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 97,154 ÷ 6,232
= 15.59

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.40 × 28.18% × 0.36 × 11.07
= 44.79%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (144,093 × 10.17%33,035) ÷ (144,093 + 33,035)
= -10.38%

where:
Equity market value0 = current market value of Amgen Inc. common stock (US$ in millions)
FCFE0 = the last year Amgen Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Amgen Inc. common stock


FCFE growth rate (g) forecast

Amgen Inc., H-model

Microsoft Excel
Year Value gt
1 g1 44.79%
2 g2 31.00%
3 g3 17.21%
4 g4 3.42%
5 and thereafter g5 -10.38%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 44.79% + (-10.38%44.79%) × (2 – 1) ÷ (5 – 1)
= 31.00%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 44.79% + (-10.38%44.79%) × (3 – 1) ÷ (5 – 1)
= 17.21%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 44.79% + (-10.38%44.79%) × (4 – 1) ÷ (5 – 1)
= 3.42%