Is Amgen Stock a Buy?

Amgen (NASDAQ: AMGN) stock is up 13% this year but has struggled to break out above a tight trading range in recent months. Despite a string of solid earnings reports from the biotechnology giant and Dow Jones Industrial Average component, pending clinical-trial data from its drug pipeline has added a layer of uncertainty.

On the other hand, the company continues to deliver strong growth with overall positive fundamentals. So is now a good time to pick up some Amgen shares? Here's what you need to know.

A diversified biotech product portfolio

Amgen is recognized as a biotech pioneer with a long history of groundbreaking discoveries. From developing Epogen in the 1980s as one of the first recombinant DNA technology-based treatments for anemia to launching the first-of-its-kind monoclonal-antibody therapy against cancer with Neulasta in 2003, that tradition of innovation has continued.

The company now counts on an extensive portfolio of blockbuster drugs across fields like oncology, immunology, cardiology, inflammation, and rare diseases. Ultimately, that diversification is a big part of what makes Amgen a compelling investment opportunity. The latest trends have been impressive.

In the second quarter, Amgen's product net sales climbed by 20% year over year with 12 drugs posting at least double-digit sales growth. Some of the top performers included the osteoporosis medication, Evenity, which saw a 39% increase from last year, along with the asthma treatment Tezspire, with sales up 76% from Q2 2023. Several early-lifecycle rare-disease products have also added sales momentum.

Higher spending to support product launches and ongoing R&D has pressured profitability, leading to a 1% decline in earnings per share (EPS) to $4.97 compared to the prior-year quarter. Nevertheless, management is guiding for full-year EPS in the $19.10-to-$20.10 range, representing a company record and a 5% increase at the midpoint from 2023. Amgen is also targeting 2024 revenue growth of around 18%, projecting confidence in the significant opportunities ahead.

Image source: Getty Images.

All eyes on the MariTide candidate

Beyond the products currently on the market, Amgen benefits from a pipeline of multiple-drug candidates in various stages of development and clinical studies expected to be future growth drivers. One of the most exciting is its MariTide GLP-1 receptor agonist drug candidate, currently in phase 2 clinical study as a novel weight-loss and obesity treatment.

In this case, Amgen is attempting to compete with Eli Lilly and Novo Nordisk, among others, in what has evolved into one of the fastest-growing categories of medicine. A top-line data readout is expected this year with the company already making plans for a phase 3 program. MariTide stands out based on some early pre-clinical data suggesting it may be longer lasting compared to current market leaders like Zepbound and Wegovy where patients often regain the weight after they stop taking the drugs.

If the upcoming results confirm the favorable signs of efficacy and safety, Amgen could be on track to launch its next blockbuster platform. That said, it's also understood that the possibility of a setback to the MariTide approval process or commercialization timetable would force a reassessment of the earnings potential as a risk for investors to consider.

What I like about the stock is its combination of growth and value. Amgen trades at 17 times its consensus 2024 EPS estimate, a bargain next to Eli Lilly at a forward price-to-earnings ratio of 60 or Novo Nordisk at 36.

A successful entry into the GLP-1 category would transform Amgen into the next stage of its growth cycle. In my view, the bullish case for Amgen stock is that it could capture some valuation expansion to trade at a premium to peers like AstraZeneca with a forward P/E of 19 and AbbVie at 18 as earnings accelerate over time.

AMGN PE Ratio (Forward) data by YCharts.

The big picture for investors

I believe Amgen stock deserves a buy rating as a healthcare sector leader with plenty of catalysts on the horizon for the stock to rally higher. Beyond anticipation of an update on the MariTide drug, the company's current product portfolio is well-positioned to reward shareholders.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Amgen and Novo Nordisk. The Motley Fool has a disclosure policy.