Valuation analysis for Amgen, Inc. (NASDAQ:AMGN)

The fair value of Amgen, Inc. (NASDAQ:AMGN) is directly related to both current and future earnings growth and this article identifies fair value using earnings, the PE multiple, and analysts expectations going forward to derive forward looking valuation metrics to help investors may educated decisions.

To begin, our observations entail complete earnings cycles to remove seasonal anomalies and we also exclude onetime events to focus on truer growth rates.  We also use valuation metrics in association with our earnings growth observations to define fair value.

Our observations suggest that if analysts are right about their estimates for earnings EPS growth for Amgen will be 14.8% at the end of 2015 (first red dot).  Furthermore, if analysts are right about their 2016 estimates that growth rate is likely to accelerate to 20.69% (second red dot).  These are excellent growth rates in our opinion.

That brings our attention to the PE multiple and in our PE multiple chart the blue bar represents the current PE multiple of 18.11, the first red bar represents what the PE multiple would be if analysts are correct about their earnings estimates for 2015 and price remains the same, that's 16.96, and if analysts are right about their estimates for 2016 the PE multiple is likely to drop to 15 times earnings as noted in the second red bar in our PE multiple graph.

When we combine forward looking earnings growth and the forward looking PE multiples we start to see something very interesting from a valuation perspective.  The blue dot in our peg ratio graph identifies the peg ratio for Amgen currently.  That is 1.15, and we consider fair value to be between zero and 1.5, so reasonably, given the relationship between the PE multiple and the growth rate that currently exists for Amgen we would consider Amgen to be fairly valued at current levels.

However, when we look ahead to what analysts are expecting for 2015 and 2016 the peg ratio declines first to 1.14 at the end of 2015 if analysts are right about their expectations and price remains the same, and then even further to 0.73 by the end of 2016 as well.  This tells us that the valuation for Amgen not only already looks attractive, but that valuation could look even better going forward if the company matches analyst's estimates.

As a result, we would consider Amgen to be a stock that value oriented investors should consider.

Trading Analysis:  If you would like to know our buy and sell targets for AMGN please review our real time trading report for AMGN.