Analysis: AMGN

After you receive this Alert, we will be buying 25 shares of Amgen (AMGN) at roughly $184.44. Following the trade, AMGN will represent 3.52% of the portfolio.

We will be buying 25 shares of Amgen this morning. This trade represents a repurchase of half the amount we recently sold when the stock traded above $200. As we accurately pointed out in that trade Alert here, we grew cautious on Amgen due to the likelihood of management providing downside 2019 guidance on the basis of biosimilar/generic pressure, even though we have maintained the view of how the company can succeed through such challenges.

Our caution was confirmed last week, which was when the company provided weak 2019 guidance despite the very strong fourth-quarter 2018 results (see our Alert here). The reaction to guidance was a clear negative and caused the stock to spiral from $192 to as low as the $179 handle. Now that the dust has settled on guidance, many have defended management's wide outlook range. We agree with the view of how guidance was ultra-cautious and priced in too much downside. Because we don't think the 2019 year will be as weak as advertised, we view shares as attractive (especially with this now ~3.15% dividend yield) and we will upgrade our rating to a One.

We have routinely expressed in the past how the Amgen management team is totally non-promotional. Backing this view is our continual championing of the long-term growth potential of Aimovig, the company's migraine-prevention drug whose fourth-quarter results confirmed its terrific launch. Despite Aimovig's early success, management hasn't been promotional on the product to our liking. This all is all demonstrative of Amgen's long history of being conservative and "UPOD," or under-promising and over-delivering.

In confirmation of how management likes to set a low bar with its financial guidance, below is a table created by the Jefferies Equity Research Team that breaks down management's initial guidance from 2013-2018 and how the company actually performed. The table shows how management's annual guidance has typically been uninspiring, yet the company has frequently beat on the high end. This supports our view of how Amgen' guidance has incorporated too much competition and downside risk, making the shares on this pullback attractive.

Source: Jefferies Equity Research