AMGN: Tired of saying "undervalued"

I am getting tired of stating AMGN is undervalued. But I will have to say it again: AMGN is grossly undervalued. The risk to award ratio is favorable and if I was recommending the stock above $70 level, I would be definitely recommend the stock at today price of $66.35.

AMGN saw a lot of selling pressure late last week due to Danish Cooperative Group Head&Neck Cancer (DAHANCA) trial result show increased progression of tumor cell with Aranesp for patients with hemoglobin level above 12 g/dl. Credit Suisse came out with negative comments stating there is an increased risk for AMGN; the insurers and physicians may pare back on the use of Aranesp/EPO products, given the possibility that physicians may become more concerned with negative side effects of EPO products for patients with higher hemoglobin level. The firm also questions that credibility of the management team as it was disappointed that AMGN did not release DAHANCA results during the last conference call. The firm sees slightly decreased estimate for AMGN: revised to $4.04 from $4.12 for 07 and $4.57 from $4.54 for 08. The target price is at $63.

In a separate post, I will post a link which summarizes the view points of many analysts who were defending the stock on DAHANCA announcement.

My take is that even with the decreased EPS estimate from Credit Suisse, AMGN is trading at 14X the 08 EPS. If you take the more bullish analysts' side, it appears that the stock is trading with PE multiple ~13X based on 08 EPS estimate near $5. At this point, AMGN is trading cheaper than some traditional pharmaceutical companies (MRK, etc) and yet the growth rate is expected to be substantially greater than traditional pharmacy companies. All the negativities are built into the stock price. Consequently, AMGN could languish further as the momentum traders continue to bash the stock but I see limited downside and think that risk to award ratio is pretty good for those with the long term outlook on the stock. I continue to stand by my target at $100 for the stock.

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