Stock Analysis on Net
Stock Analysis on Net

Amgen Inc. (NASDAQ:AMGN)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Amgen Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.51%
01 FCFF0 9,411
1 FCFF1 9,981 = 9,411 × (1 + 6.06%) 9,199
2 FCFF2 10,531 = 9,981 × (1 + 5.51%) 8,944
3 FCFF3 11,053 = 10,531 × (1 + 4.95%) 8,652
4 FCFF4 11,539 = 11,053 × (1 + 4.40%) 8,324
5 FCFF5 11,983 = 11,539 × (1 + 3.85%) 7,966
5 Terminal value (TV5) 266,980 = 11,983 × (1 + 3.85%) ÷ (8.51% – 3.85%) 177,497
Intrinsic value of Amgen Inc. capital 220,583
Less: Borrowings (fair value) 59,200
Intrinsic value of Amgen Inc. common stock 161,383
 
Intrinsic value of Amgen Inc. common stock (per share) $300.23
Current share price $279.95

Based on: 10-K (reporting date: 2023-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Amgen Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 150,482 0.72 10.32%
Borrowings (fair value) 59,200 0.28 3.90% = 4.45% × (1 – 12.46%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 537,532,723 × $279.95
= $150,482,285,803.85

   Borrowings (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (14.50% + 10.80% + 12.10% + 10.70% + 14.20%) ÷ 5
= 12.46%

WACC = 8.51%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Amgen Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense, net 2,875 1,406 1,197 1,262 1,289
Net income 6,717 6,552 5,893 7,264 7,842
 
Effective income tax rate (EITR)1 14.50% 10.80% 12.10% 10.70% 14.20%
 
Interest expense, net, after tax2 2,458 1,254 1,052 1,127 1,106
Add: Dividends declared on common stock 4,644 4,264 4,098 3,843 3,555
Interest expense (after tax) and dividends 7,102 5,518 5,150 4,970 4,661
 
EBIT(1 – EITR)3 9,175 7,806 6,945 8,391 8,948
 
Current portion of long-term debt 1,443 1,591 87 91 2,953
Long-term debt, excluding current portion 63,170 37,354 33,222 32,895 26,950
Stockholders’ equity 6,232 3,661 6,700 9,409 9,673
Total capital 70,845 42,606 40,009 42,395 39,576
Financial Ratios
Retention rate (RR)4 0.23 0.29 0.26 0.41 0.48
Return on invested capital (ROIC)5 12.95% 18.32% 17.36% 19.79% 22.61%
Averages
RR 0.33
ROIC 18.21%
 
FCFF growth rate (g)6 6.06%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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2023 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 2,875 × (1 – 14.50%)
= 2,458

3 EBIT(1 – EITR) = Net income + Interest expense, net, after tax
= 6,717 + 2,458
= 9,175

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [9,175 – 7,102] ÷ 9,175
= 0.23

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 9,175 ÷ 70,845
= 12.95%

6 g = RR × ROIC
= 0.33 × 18.21%
= 6.06%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (209,682 × 8.51% – 9,411) ÷ (209,682 + 9,411)
= 3.85%

where:

Total capital, fair value0 = current fair value of Amgen Inc. debt and equity (US$ in millions)
FCFF0 = the last year Amgen Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Amgen Inc. capital

FCFF growth rate (g) forecast

Amgen Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.06%
2 g2 5.51%
3 g3 4.95%
4 g4 4.40%
5 and thereafter g5 3.85%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.06% + (3.85% – 6.06%) × (2 – 1) ÷ (5 – 1)
= 5.51%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.06% + (3.85% – 6.06%) × (3 – 1) ÷ (5 – 1)
= 4.95%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.06% + (3.85% – 6.06%) × (4 – 1) ÷ (5 – 1)
= 4.40%