Founded in 1980, Amgen is now a $113 billion (by market cap) healthcare behemoth that employs more than 24,000 people.

Amgen offers treatments for a range of ailments, including anemia, rheumatoid arthritis, psoriasis, cancer, and osteoporosis. FY 2020 total product sales break down geographically as follows: US, 74%; Rest of World, 26%. Some of its major drugs include: Enbrel, 21% of FY 2020 sales; Prolia, 11%; Neulasta, 9%; Otezla, 9%; and XGEVA, 8%. Their biggest blockbuster, Enbrel, generates over $5 billion in total annual sales and has patent protection until almost the end of this decade.

Amgen is benefiting from a rising tide that is lifting all boats. Already, Amgen has increased its dividend for 11 consecutive years. The five-year dividend growth rate is an astounding 15.2%. That double-digit dividend growth is paired with a starting yield of 3.5%. This yield is substantially higher than what the broader market offers. It’s also 80 basis points higher than the stock’s own five-year average yield. This is a highly appealing combination of yield and growth that I don’t often come across. And with a payout ratio of only 41.9%, based on midpoint adjusted EPS guidance for this fiscal year, the dividend is in a great position to continue growing at a relatively high rate.

I love dividend growth stocks in what I refer to as the “sweet spot” – that’s a yield of between 2.5% and 3.5%, paired with a high-single-digit (or better) dividend growth rate. As you can see, this stock is basically as “sweet” as it gets.

Moving over to the balance sheet, Amgen commands a good financial position. The long-term debt/equity ratio is 3.5. While that is very high, it’s only so high because of low common equity (not an outrageous debt load). The interest coverage ratio of over 7 shows no problems with servicing debt. Profitability is extremely robust. Over the last five years, the firm has averaged an annual net margin of 27.0% and an annual return on equity of 46.3%. There’s almost nothing to dislike about Amgen. The P/E ratio is 20.7. That’s better than the broader market’s earnings multiple. It’s also materially lower than the stock’s own five-year average P/E ratio of 24.6. We can also see a disconnect on the sales multiple. The current P/S ratio of 4.5 is well off of its own five-year average of 5.6. And the yield, as noted earlier, is significantly higher than its own recent historical average. Morningstar rates AMGN as a 3-star stock, with a fair value estimate of $200.00. CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line. They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold. CFRA rates AMGN as a 4-star “BUY”, with a 12-month target price of $245.00.

I came in surprisingly high, but I’d also argue that Morningstar is too low. Averaging the three numbers out gives us a final valuation of $249.24, which would indicate the stock is possibly 24% undervalued.

Bottom line: Amgen, Inc. (AMGN) is a high-quality company across the board. They benefit from a rising tide lifting all boats. With a market-beating 3.5% yield, double-digit long-term dividend growth, more than 10 consecutive years of dividend increases, a low payout ratio, and the potential that shares are 24% undervalued, this is a world-class healthcare business that is on sale.

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