Is Now the Right Time to Revisit Amgen After Its Recent 18% Price Surge?

• Wondering if Amgen is a hidden gem or already fully priced? You’re not alone. Now might be the perfect time to take a closer look at its value.
• Amgen’s stock has posted impressive gains recently, climbing 2.3% in the past week and 18.3% over the last month. Its year-to-date return stands at a robust 33.2%.
• Much of this momentum stems from positive news around Amgen’s progress in its drug pipeline and several recent approvals by regulatory authorities. This has fueled optimism about future revenue streams. Additionally, investors are watching closely as the company pursues high-profile partnerships and expansion into new therapeutic areas.
• On our valuation scorecard, Amgen earns a 4 out of 6 for undervaluation, which is good, but not a guarantee of a bargain. Let’s break down what those valuation metrics are telling us right now, and keep an eye out for an even smarter way to cut through the numbers later in this article.

Amgen delivered 26.1% returns over the last year. See how this stacks up to the rest of the Biotechs industry.

Approach 1: Amgen Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to today's value. This approach helps investors get a clearer sense of what a business is really worth beyond short-term market moves.

Looking at Amgen, the company currently generates Free Cash Flow (FCF) of approximately $11.7 billion. Analysts provide projections for the next five years, after which cash flows are extrapolated. By 2029, Amgen's FCF is forecast to reach $14.6 billion, and estimates by Simply Wall St suggest further growth beyond that point. All values are measured in US dollars.

When these cash flow estimates are run through the DCF model, Amgen's intrinsic value is calculated at $555.10 per share. This figure is about 37.8% higher than the current share price, suggesting that the stock may be undervalued by the market at this time.

For investors, this DCF outcome provides an indication that Amgen could present value opportunities, particularly for those interested in long-term growth prospects and business fundamentals.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Amgen is undervalued by 37.8%. Track this in your watchlist or portfolio, or discover 917 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Amgen.

Approach 2: Amgen Price vs Earnings

The price-to-earnings (PE) ratio is widely used for valuing profitable companies because it directly relates a company's share price to its earnings. This provides a snapshot of how much investors are willing to pay today for a dollar of current earnings. As a result, it is particularly useful for established firms like Amgen, where consistent profits offer a clearer baseline for comparison.

However, what counts as a "normal" or "fair" PE ratio can vary widely depending on growth prospects and perceived risks. Companies with faster expected earnings growth or lower risk typically justify higher PE ratios, while those facing headwinds or greater uncertainty often trade at lower multiples.

Amgen is currently trading at a PE ratio of 26.6x. For context, the average PE in the biotech industry is about 19x, and the peer group sits much higher at 59.5x. While Amgen's multiple is above the industry average, it is well below that of its direct peers. This may underscore its solid profitability but potentially more measured growth profile.

To get a more nuanced view, Simply Wall St uses a proprietary Fair Ratio, calculated at 27.8x for Amgen. Unlike broad industry or peer comparisons, the Fair Ratio incorporates the company’s own earnings growth potential, risk factors, margins, market cap, and sector trends. This provides a more tailored and direct benchmark for valuation.

Comparing Amgen's actual PE of 26.6x to its Fair Ratio of 27.8x suggests that the current valuation is very close to fair value, reflecting a balanced outlook given its growth, profitability, and industry position.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Amgen Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply the story you believe about Amgen, reflecting your outlook on its future revenue, profits, risks, and opportunities, translated into your own forecast and an estimated Fair Value, all in one place.

With Narratives, you do not just look at static numbers; you anchor your investment decisions in a scenario that connects Amgen’s business story to a financial outlook and a fair price for the stock. Narratives are easy to use and accessible to all investors within the Simply Wall St Community page, a platform trusted by millions.

By creating or following Narratives, you can clearly see how changes in assumptions or the latest news affect Amgen’s prospects and Fair Value. Narratives provide a dynamic, continuously updated way to track your views on the stock. For example, some investors believe Amgen’s innovative pipeline justifies a Fair Value above $400, while others see competitive and pricing risks as limiting value closer to $219.

In short, Narratives link Amgen’s story to its numbers so you can invest with context, confidence, and a forward-looking perspective.

For Amgen, however, we'll make it really easy for you with previews of two leading Amgen Narratives:

🐂 Amgen Bull Case

Fair Value Target: $404.87

Current Valuation: 14.7% below fair value

Assumed Annual Revenue Growth: 7.1%

• Expanding product volumes and AI-driven R&D capabilities are forecast to drive frequent high-impact drug launches, with expectations for increased revenue and margin growth.
• Strong global expansion, resilience to industry pricing pressures, and robust M&A capacity support Amgen’s long-term earnings growth and growing market reach.
• Risks include tightening drug pricing regulation, biosimilar competition, rising R&D and acquisition costs, and possible integration difficulties with recent and future acquisitions.

🐻 Amgen Bear Case

Fair Value Target: $318.51

Current Valuation: 8.5% above fair value

Assumed Annual Revenue Growth: 1.9%

• Diversification through chronic disease treatments, biosimilars, and innovative personalized therapies is expected to support revenue, but profit and growth are seen as challenged by numerous risks.
• Mounting drug pricing pressures, intensifying biosimilar competition, and heightened R&D costs may limit margin expansion and market leadership.
• Regulatory uncertainties, late-stage pipeline risks, and stalling demographics could restrict future growth and keep the stock price close to consensus fair value.

Do you think there's more to the story for Amgen? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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