Monday, March 31, 2014

Investing in Biotechnology Earnings Growth

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Biotechnology, easily one of the best performing sectors over the past few years, has run into a bit of a roadblock lately. Some of the big names in the space have seen worries creep in about Congressional involvement in drug pricing, while there has been a general disdain for growth stocks in recent sessions too.

Despite this, many names in the biotechnology world are still looking quite promising. Drug pipelines remain robust, while earnings estimates continue to move in the right direction as well. While many companies fit this bill, one that stands out is the large cap behemoth Amgen (AMGN - Trend Report).

AMGN in Focus

Amgen is a massive Southern California-based biotechnology company that has a market capitalization approaching $100 billion. AMGN has drugs—or is developing drugs—in a variety of areas, including oncology, inflammation, cardiovascular, nephrology, and general medicine just to name a few.

The stock has added over 80% in the past two years making it a solid performer, and one that has easily crushed the broad S&P 500 in the same time frame. However, thanks to some worries about the sector, AMGN has seen some rough trading in recent sessions, as it is pretty much flat over the past one month, underperforming the S&P 500 for the period.

Yet despite this recent bout of sluggishness, AMGN might actually be looking at some promising trends in the near term. This is particularly true if you look at recent activity on the earnings estimate revision front, as this analyst opinion has been extremely positive as of late.

AMGN Earnings Estimate Revisions

Amgen has seen very solid earnings estimate activity, as not a single estimate in our consensus has gone lower for any time period that we study (current or next quarter, as well as current year and next year). plus, there has been a decent magnitude in the movement higher, with the consensus seeing a sharp increase in just the past 30 days alone.

For the current quarter, earnings estimates have moved from $1.71/share 60 days ago to $1.81/share today, while we see a nine cent increase for the next quarter period, as this went from $1.87/share to $1.96/share. A similar trend hits AMGN for the current year too, as this consensus has moved from $7.92 a share 60 days ago to $8.10 per share today.

Now, AMGN is expected to have growth of about 7% for the current year, and 8.6% for the next year time frame. While this are admittedly not amazing growth rates, it is important to keep in mind that AMGN is a massive company that has some degree of stability, something that you can’t really say about many other, smaller biotechnology firms.

Amgen also has a very strong history when it comes to earnings season, as it has averaged a surprise of nearly 11% over the last four quarters. This suggest that AMGN has had no trouble in meeting expectations in this market environment, and that it is a solid pick for upcoming earnings in a few weeks time.

Due to these positive earnings trends, we have assigned AMGN a Zacks Rank #1 (Strong Buy). This means that we are expecting this company to outperform in the near term, and to bounce off of this recent weakness with ease.

Bottom Line

Investors should also be comforted by the fact that the biotech sector is currently ranked in the top 30% in terms of the Zacks Industry Rank. And as of right now, not a single company has a Zacks Rank #5 (Strong Sell) out of 186 companies in the segment suggesting some broad strength across the space.

But clearly one of the best positioned companies in this segment has to be Amgen. The company is currently seeing strong earnings estimate revision activity, and it is far more stable than many of the other names in the sector as well.

If that wasn’t enough, AMGN also pays out a dividend yield of over 2% to investors, a pretty big payout considering that many other names in the biotech world do not have dividends at all. So if you are looking for a safe way to tackle biotech, consider AMGN. Not only does it pay out a solid yield and have a very low beta, but its strong earnings estimate revisions suggest that growth is in its future too.

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