Will Amgen Stock Continue to Rise After Recent Acquisition?

With shares of Amgen (NASDAQ:AMGN) trading around $114, is AMGN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Amgen is a global biotechnology pioneer that discovers, develops, manufactures, and delivers human therapeutics. Its medicines help millions of patients in the fight against cancer, kidney disease, rheumatoid arthritis, bone disease, and other serious illnesses. Its principal products aim to help the body fight infections, play a role in the body’’s response to inflammatory diseases, stimulate the production of red blood cells, and treat men with castration-resistant prostate cancer.

Amgen will pay $10.4 billion to acquire Onyx Pharmaceuticals (NASDAQ:ONXX) after raising its bid from $120 to $125 a share. Amgen now has access to Onyx’s Krypolis blood cancer drug that expected to be a hit as analysts from Bloomberg have estimated the drug could make $3 billion in revenue by 2021.

T = Technicals on the Stock Chart are Strong

Amgen stock has been surging higher over the last several years. The stock reached all-time high todays after markets responded positively about a potential acquisition. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Amgen is trading above its rising key averages which signal neutral to bullish price action in the near-term.

AMGN

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Amgen options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Amgen Options

27.95%

86%

83%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Amgen’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Amgen look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

2.48%

27.03%

-7.31%

182.00%

Revenue Growth (Y-O-Y)

4.51%

4.69%

11.28%

9.51%

Earnings Reaction

-2.61%

-6.94%

-0.54%

0.20%

Amgen has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from Amgen’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Amgen stock done relative to its peers Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), GlaxoSmithKline (NYSE:GSK), and sector?

Amgen

Johnson & Johnson

Pfizer

GlaxoSmithKline

Sector

Year-to-Date Return

32.42%

25.31%

12.68%

19.67%

20.57%

Amgen has been a relative performance leader, year-to-date.

Conclusion

Amgen is a global biotechnology company that aims to discover, produce, and deliver human therapeutics worldwide. The company is reportedly set to acquire Onyx Pharmaceuticals, a move that the markets seem to be happy with. The stock has been surging higher in the last few months and is now trading near all-time high prices. Over the last four quarters, earnings and revenues have been rising, however, investors in the company have been expecting a little more. Relative to its peers and sector, Amgen has been a year-to-date performance leader. Look for Amgen to continue to OUTPERFORM.

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