Intrinsic value of Amgen - AMGN

Previous Close

$167.29

  Intrinsic Value

$182.48

stock screener

  Rating & Target

hold

+9%

  Value-price divergence*

+13%

Previous close

$167.29

 
Intrinsic value

$182.48

 
Up/down potential

+9%

 
Rating

hold

 
Value-price divergence*

+13%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AMGN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 123.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.14
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  22,991
  23,451
  23,990
  24,607
  25,299
  26,066
  26,907
  27,824
  28,816
  29,884
  31,031
  32,258
  33,568
  34,961
  36,443
  38,015
  39,681
  41,444
  43,309
  45,280
  47,360
  49,555
  51,871
  54,311
  56,882
  59,590
  62,441
  65,442
  68,600
  71,922
  75,417
Variable operating expenses, $m
 
  2,831
  2,863
  2,898
  2,938
  2,983
  3,031
  3,084
  3,142
  3,204
  3,270
  1,866
  1,942
  2,022
  2,108
  2,199
  2,295
  2,397
  2,505
  2,619
  2,739
  2,866
  3,000
  3,141
  3,290
  3,447
  3,612
  3,785
  3,968
  4,160
  4,362
Fixed operating expenses, $m
 
  11,088
  11,366
  11,650
  11,941
  12,240
  12,546
  12,859
  13,181
  13,510
  13,848
  14,194
  14,549
  14,913
  15,286
  15,668
  16,059
  16,461
  16,872
  17,294
  17,727
  18,170
  18,624
  19,090
  19,567
  20,056
  20,557
  21,071
  21,598
  22,138
  22,691
Total operating expenses, $m
  13,197
  13,919
  14,229
  14,548
  14,879
  15,223
  15,577
  15,943
  16,323
  16,714
  17,118
  16,060
  16,491
  16,935
  17,394
  17,867
  18,354
  18,858
  19,377
  19,913
  20,466
  21,036
  21,624
  22,231
  22,857
  23,503
  24,169
  24,856
  25,566
  26,298
  27,053
Operating income, $m
  9,794
  9,531
  9,762
  10,059
  10,419
  10,844
  11,330
  11,880
  12,493
  13,171
  13,913
  16,198
  17,077
  18,027
  19,050
  20,149
  21,326
  22,586
  23,932
  25,367
  26,894
  28,519
  30,246
  32,080
  34,025
  36,087
  38,272
  40,586
  43,034
  45,624
  48,363
EBITDA, $m
  11,899
  12,030
  12,284
  12,608
  12,999
  13,457
  13,980
  14,570
  15,226
  15,950
  16,743
  17,607
  18,542
  19,553
  20,641
  21,808
  23,059
  24,396
  25,823
  27,343
  28,962
  30,683
  32,511
  34,451
  36,508
  38,689
  40,998
  43,443
  46,029
  48,764
  51,656
Interest expense (income), $m
  1,300
  1,178
  1,211
  1,250
  1,296
  1,347
  1,403
  1,465
  1,532
  1,605
  1,684
  1,768
  1,858
  1,954
  2,057
  2,166
  2,281
  2,404
  2,533
  2,671
  2,815
  2,968
  3,130
  3,300
  3,479
  3,668
  3,867
  4,077
  4,297
  4,530
  4,774
Earnings before tax, $m
  9,163
  8,353
  8,551
  8,808
  9,124
  9,497
  9,927
  10,415
  10,961
  11,566
  12,230
  14,430
  15,219
  16,072
  16,993
  17,983
  19,045
  20,183
  21,398
  22,696
  24,079
  25,551
  27,117
  28,780
  30,546
  32,419
  34,405
  36,509
  38,737
  41,095
  43,590
Tax expense, $m
  1,441
  2,255
  2,309
  2,378
  2,463
  2,564
  2,680
  2,812
  2,959
  3,123
  3,302
  3,896
  4,109
  4,339
  4,588
  4,855
  5,142
  5,449
  5,778
  6,128
  6,501
  6,899
  7,322
  7,771
  8,247
  8,753
  9,289
  9,857
  10,459
  11,096
  11,769
Net income, $m
  7,722
  6,098
  6,242
  6,430
  6,660
  6,933
  7,247
  7,603
  8,002
  8,443
  8,928
  10,534
  11,110
  11,733
  12,405
  13,127
  13,903
  14,733
  15,621
  16,568
  17,578
  18,652
  19,795
  21,010
  22,299
  23,666
  25,116
  26,651
  28,278
  29,999
  31,820

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  38,085
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  77,626
  57,478
  58,799
  60,311
  62,007
  63,887
  65,950
  68,196
  70,627
  73,246
  76,057
  79,064
  82,273
  85,690
  89,321
  93,174
  97,257
  101,579
  106,150
  110,980
  116,079
  121,460
  127,134
  133,115
  139,417
  146,054
  153,042
  160,398
  168,138
  176,280
  184,845
Adjusted assets (=assets-cash), $m
  39,541
  57,478
  58,799
  60,311
  62,007
  63,887
  65,950
  68,196
  70,627
  73,246
  76,057
  79,064
  82,273
  85,690
  89,321
  93,174
  97,257
  101,579
  106,150
  110,980
  116,079
  121,460
  127,134
  133,115
  139,417
  146,054
  153,042
  160,398
  168,138
  176,280
  184,845
Revenue / Adjusted assets
  0.581
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
Average production assets, $m
  13,441
  13,719
  14,034
  14,395
  14,800
  15,249
  15,741
  16,277
  16,857
  17,482
  18,153
  18,871
  19,637
  20,452
  21,319
  22,239
  23,213
  24,245
  25,336
  26,489
  27,706
  28,990
  30,344
  31,772
  33,276
  34,860
  36,528
  38,284
  40,131
  42,075
  44,119
Working capital, $m
  34,806
  1,149
  1,176
  1,206
  1,240
  1,277
  1,318
  1,363
  1,412
  1,464
  1,521
  1,581
  1,645
  1,713
  1,786
  1,863
  1,944
  2,031
  2,122
  2,219
  2,321
  2,428
  2,542
  2,661
  2,787
  2,920
  3,060
  3,207
  3,361
  3,524
  3,695
Total debt, $m
  34,596
  31,045
  32,062
  33,224
  34,529
  35,974
  37,560
  39,287
  41,157
  43,171
  45,333
  47,646
  50,113
  52,741
  55,533
  58,496
  61,636
  64,960
  68,474
  72,188
  76,110
  80,247
  84,611
  89,210
  94,056
  99,160
  104,534
  110,191
  116,143
  122,405
  128,991
Total liabilities, $m
  47,751
  44,200
  45,217
  46,379
  47,684
  49,129
  50,715
  52,442
  54,312
  56,326
  58,488
  60,801
  63,268
  65,896
  68,688
  71,651
  74,791
  78,115
  81,629
  85,343
  89,265
  93,402
  97,766
  102,365
  107,211
  112,315
  117,689
  123,346
  129,298
  135,560
  142,146
Total equity, $m
  29,875
  13,277
  13,583
  13,932
  14,324
  14,758
  15,234
  15,753
  16,315
  16,920
  17,569
  18,264
  19,005
  19,794
  20,633
  21,523
  22,466
  23,465
  24,521
  25,636
  26,814
  28,057
  29,368
  30,750
  32,205
  33,738
  35,353
  37,052
  38,840
  40,721
  42,699
Total liabilities and equity, $m
  77,626
  57,477
  58,800
  60,311
  62,008
  63,887
  65,949
  68,195
  70,627
  73,246
  76,057
  79,065
  82,273
  85,690
  89,321
  93,174
  97,257
  101,580
  106,150
  110,979
  116,079
  121,459
  127,134
  133,115
  139,416
  146,053
  153,042
  160,398
  168,138
  176,281
  184,845
Debt-to-equity ratio
  1.158
  2.340
  2.360
  2.380
  2.410
  2.440
  2.470
  2.490
  2.520
  2.550
  2.580
  2.610
  2.640
  2.660
  2.690
  2.720
  2.740
  2.770
  2.790
  2.820
  2.840
  2.860
  2.880
  2.900
  2.920
  2.940
  2.960
  2.970
  2.990
  3.010
  3.020
Adjusted equity ratio
  -0.208
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,722
  6,098
  6,242
  6,430
  6,660
  6,933
  7,247
  7,603
  8,002
  8,443
  8,928
  10,534
  11,110
  11,733
  12,405
  13,127
  13,903
  14,733
  15,621
  16,568
  17,578
  18,652
  19,795
  21,010
  22,299
  23,666
  25,116
  26,651
  28,278
  29,999
  31,820
Depreciation, amort., depletion, $m
  2,105
  2,499
  2,522
  2,549
  2,580
  2,613
  2,650
  2,690
  2,733
  2,780
  2,830
  1,408
  1,465
  1,526
  1,591
  1,660
  1,732
  1,809
  1,891
  1,977
  2,068
  2,163
  2,264
  2,371
  2,483
  2,602
  2,726
  2,857
  2,995
  3,140
  3,292
Funds from operations, $m
  10,355
  8,597
  8,765
  8,979
  9,240
  9,546
  9,897
  10,293
  10,735
  11,223
  11,758
  11,942
  12,575
  13,259
  13,996
  14,787
  15,635
  16,543
  17,512
  18,545
  19,645
  20,816
  22,060
  23,381
  24,782
  26,267
  27,842
  29,508
  31,273
  33,139
  35,113
Change in working capital, $m
  1
  23
  26
  30
  34
  38
  41
  45
  49
  52
  56
  60
  64
  68
  73
  77
  82
  86
  91
  97
  102
  108
  113
  120
  126
  133
  140
  147
  155
  163
  171
Cash from operations, $m
  10,354
  8,574
  8,738
  8,949
  9,206
  9,508
  9,856
  10,248
  10,686
  11,170
  11,701
  11,882
  12,511
  13,191
  13,923
  14,710
  15,554
  16,456
  17,420
  18,448
  19,543
  20,708
  21,946
  23,261
  24,656
  26,135
  27,702
  29,361
  31,118
  32,976
  34,942
Maintenance CAPEX, $m
  0
  -1,003
  -1,024
  -1,047
  -1,074
  -1,104
  -1,138
  -1,175
  -1,215
  -1,258
  -1,305
  -1,355
  -1,408
  -1,465
  -1,526
  -1,591
  -1,660
  -1,732
  -1,809
  -1,891
  -1,977
  -2,068
  -2,163
  -2,264
  -2,371
  -2,483
  -2,602
  -2,726
  -2,857
  -2,995
  -3,140
New CAPEX, $m
  -837
  -278
  -316
  -361
  -405
  -449
  -492
  -536
  -580
  -625
  -671
  -718
  -766
  -815
  -867
  -920
  -975
  -1,032
  -1,091
  -1,153
  -1,217
  -1,284
  -1,354
  -1,428
  -1,504
  -1,584
  -1,668
  -1,756
  -1,847
  -1,944
  -2,044
Cash from investing activities, $m
  -8,658
  -1,281
  -1,340
  -1,408
  -1,479
  -1,553
  -1,630
  -1,711
  -1,795
  -1,883
  -1,976
  -2,073
  -2,174
  -2,280
  -2,393
  -2,511
  -2,635
  -2,764
  -2,900
  -3,044
  -3,194
  -3,352
  -3,517
  -3,692
  -3,875
  -4,067
  -4,270
  -4,482
  -4,704
  -4,939
  -5,184
Free cash flow, $m
  1,696
  7,293
  7,399
  7,541
  7,727
  7,955
  8,225
  8,537
  8,891
  9,287
  9,726
  9,810
  10,337
  10,910
  11,530
  12,199
  12,919
  13,692
  14,520
  15,405
  16,349
  17,356
  18,429
  19,569
  20,781
  22,067
  23,432
  24,880
  26,414
  28,038
  29,757
Issuance/(repayment) of debt, $m
  3,593
  852
  1,017
  1,162
  1,305
  1,446
  1,586
  1,727
  1,870
  2,014
  2,162
  2,313
  2,468
  2,627
  2,792
  2,963
  3,140
  3,324
  3,515
  3,714
  3,921
  4,138
  4,364
  4,599
  4,846
  5,104
  5,374
  5,656
  5,952
  6,262
  6,586
Issuance/(repurchase) of shares, $m
  -2,910
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  399
  852
  1,017
  1,162
  1,305
  1,446
  1,586
  1,727
  1,870
  2,014
  2,162
  2,313
  2,468
  2,627
  2,792
  2,963
  3,140
  3,324
  3,515
  3,714
  3,921
  4,138
  4,364
  4,599
  4,846
  5,104
  5,374
  5,656
  5,952
  6,262
  6,586
Total cash flow (excl. dividends), $m
  2,095
  8,145
  8,416
  8,703
  9,031
  9,401
  9,812
  10,265
  10,761
  11,301
  11,887
  12,122
  12,804
  13,537
  14,322
  15,162
  16,059
  17,016
  18,035
  19,119
  20,271
  21,494
  22,792
  24,168
  25,627
  27,171
  28,806
  30,536
  32,366
  34,300
  36,344
Retained Cash Flow (-), $m
  -1,792
  -225
  -305
  -349
  -392
  -434
  -476
  -519
  -562
  -605
  -649
  -695
  -741
  -789
  -839
  -890
  -943
  -998
  -1,056
  -1,116
  -1,178
  -1,243
  -1,311
  -1,382
  -1,456
  -1,533
  -1,614
  -1,699
  -1,788
  -1,881
  -1,978
Prev. year cash balance distribution, $m
 
  16,823
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  24,743
  8,110
  8,354
  8,640
  8,966
  9,335
  9,746
  10,199
  10,696
  11,238
  11,428
  12,063
  12,748
  13,484
  14,272
  15,116
  16,018
  16,979
  18,003
  19,093
  20,251
  21,481
  22,787
  24,171
  25,638
  27,192
  28,837
  30,578
  32,419
  34,365
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  23,723
  7,425
  7,270
  7,114
  6,950
  6,775
  6,584
  6,375
  6,144
  5,892
  5,427
  5,148
  4,847
  4,527
  4,190
  3,841
  3,485
  3,127
  2,772
  2,426
  2,095
  1,782
  1,493
  1,231
  997
  793
  619
  473
  354
  259
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Amgen Inc. discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of illness in the areas of oncology/hematology, cardiovascular, inflammation, bone health, nephrology, and neuroscience. The company’s products include Evenity to treat osteoporosis in postmenopausal women; Prolia to treat postmenopausal women with osteoporosis; Xgeva for the prevention of skeletal-related events; Repatha to treat coronary artery diseases; Enbrel to treat plaque psoriasis, rheumatoid arthritis, and psoriatic arthritis; Parsabiv to treat secondary hyperparathyroidism (sHPT); and Erenumab for the prevention of chronic migraine. Its products also comprise Blincyto to treat patients with Philadelphia chromosome-negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia; Kyprolis, a proteasome inhibitor to treat patients with multiple myeloma and small-cell lung cancer; Nplate, a thrombopoietic compound; AMJEVITA to treat psoriatic arthritis and polyarticular juvenile idiopathic arthritis, as well as ankylosing spondylitis and moderate-to-severe rheumatoid arthritis; ABP 215 for biosimilar candidates; and ABP 980 to treat human epidermal growth factor receptor 2-positive early breast cancer. The company’s other marketed products include Neulasta, a pegylated protein to treat cancer patients; Aranesp to treat anemia; Sensipar/Mimpara products for use to treat sHPT in chronic kidney disease; EPOGEN to treat a lower-than-normal number of red blood cells; NEUPOGEN, a recombinant-methionyl human granulocyte colony-stimulating factor; and IMLYGIC to treat various cancer cells. It serves pharmaceutical wholesale distributors; and physicians or their clinics, dialysis centers, hospitals, and pharmacies, as well as consumers. The company has collaborative agreements with Pfizer Inc.; UCB; and Bayer HealthCare Pharmaceuticals Inc. Amgen Inc. was founded in 1980 and is headquartered in Thousand Oaks, California.

FINANCIAL RATIOS  of  Amgen (AMGN)

Valuation Ratios
P/E Ratio 16
Price to Sales 5.4
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 13
Growth Rates
Sales Growth Rate 6.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29%
Cap. Spend. - 3 Yr. Gr. Rate 3.8%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 101.1%
Total Debt to Equity 115.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 11.8%
Ret/ On Assets - 3 Yr. Avg. 10.7%
Return On Total Capital 12.5%
Ret/ On T. Cap. - 3 Yr. Avg. 11.2%
Return On Equity 26.6%
Return On Equity - 3 Yr. Avg. 24.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 81.9%
Gross Margin - 3 Yr. Avg. 80.1%
EBITDA Margin 54.7%
EBITDA Margin - 3 Yr. Avg. 50%
Operating Margin 42.6%
Oper. Margin - 3 Yr. Avg. 37.5%
Pre-Tax Margin 39.9%
Pre-Tax Margin - 3 Yr. Avg. 34.8%
Net Profit Margin 33.6%
Net Profit Margin - 3 Yr. Avg. 30.4%
Effective Tax Rate 15.7%
Eff/ Tax Rate - 3 Yr. Avg. 12.1%
Payout Ratio 38.8%

AMGN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMGN stock intrinsic value calculation we used $22991 million for the last fiscal year's total revenue generated by Amgen. The default revenue input number comes from 2016 income statement of Amgen. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AMGN stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AMGN is calculated based on our internal credit rating of Amgen, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Amgen.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AMGN stock the variable cost ratio is equal to 12.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $10818 million in the base year in the intrinsic value calculation for AMGN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.9% for Amgen.

Corporate tax rate of 27% is the nominal tax rate for Amgen. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AMGN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AMGN are equal to 58.5%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Amgen operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AMGN is equal to 4.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $29875 million for Amgen - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 738.106 million for Amgen is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Amgen at the current share price and the inputted number of shares is $123.5 billion.

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COMPANY NEWS

▶ Amgen in Collaboration With Humana for Patients' Benefit   [Aug-18-17 03:30PM  GuruFocus.com]
▶ What We May See from Amgens Vectibix in 2017   [10:36AM  Market Realist]
▶ Biogen: Goldman Has Conviction!   [10:08AM  Barrons.com]
▶ What Amgen Expects from Blincyto in 2017   [07:36AM  Market Realist]
▶ How Amgens Repatha Performed in 2Q17   [Aug-15-17 10:36AM  Market Realist]
▶ Gauging Amgens Xgeva Contribution in 2017   [09:07AM  Market Realist]
▶ Behind Amgens High Revenue Growth from Prolia in 2Q17   [Aug-14-17 04:36PM  Market Realist]
▶ Inside Amgens 2Q17 Performance   [02:36PM  Market Realist]
▶ What Amgens Analysts Recommend in August 2017   [01:06PM  Market Realist]
▶ Pfizers Major Growth Drivers in 2Q17   [10:37AM  Market Realist]
▶ Celgenes Otezla Witnessed High Revenue Growth in 2Q17   [Aug-10-17 09:07AM  Market Realist]
▶ Analysts Recommendations for Celgene in August 2017   [Aug-09-17 01:02PM  Market Realist]
▶ Valeant Pops on Earnings Beat, Debt Reduction Effort   [Aug-08-17 11:31AM  TheStreet.com]
▶ Here's Why Array BioPharma Inc. Fell 13.7% in July   [Aug-07-17 04:19PM  Motley Fool]
▶ The Surprising Reason Regeneron Toppled Despite Its Beat-And-Raise   [Aug-03-17 04:23PM  Investor's Business Daily]
▶ 3 ETFs to Watch Out for on Biotech Earnings   [Aug-01-17 12:26AM  Zacks]
▶ Amgen Announces 2017 Third Quarter Dividend   [Jul-28-17 04:01PM  PR Newswire]
▶ Company News for July 27, 2017   [10:44AM  Zacks]
▶ Amgen: It's Never Just About the Earnings   [02:47PM  Barrons.com]
▶ 2 Incredibly Cheap Dividend Stocks   [08:30AM  Motley Fool]
▶ Amgen beats Street 2Q forecasts   [09:24PM  Associated Press]
▶ Amgen Topples After Increased Forecast Still Lags Some Views   [05:02PM  Investor's Business Daily]
▶ Amgen beats on top line   [04:07PM  CNBC Videos]
▶ [$$] Clinical Development News, July 17-21   [Jul-21-17 07:40PM  The Wall Street Journal]
▶ Biotech Stocks On Verge Of Next Major Move Up   [Jul-19-17 02:30PM  Investopedia]
▶ Which Biotech Earnings Will Outperform?   [Jul-18-17 02:27PM  Barrons.com]
▶ Colorado biotech makes deal with industry giant   [12:03PM  American City Business Journals]
Stock chart of AMGN Financial statements of AMGN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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