- The analyst uses a discounted cash flow model with a 10% weighted average cost of capital in order to come to his $50 price target. This means that the analyst assumes that an investor in Amgen requires a 10% a year return in order to invest in Amgen. In order to receive a 10% a year return the stock would need to be $50.
- The analyst assumes that the $3 billion a year that Amgen spends on research and development yields nothing.
- The analyst assumes that all of Amgen's drugs will have disappointing sales relative to expectations.
- The analyst assumes that biosimilars will have a larger than expected effect on sales of Amgen's drugs.
Whenever I see a stock that looks attractive I always ask what's the catch. I seek out the bear case because in many cases when a stock looks cheap there is a good reason. In the case of Amgen I believe the company has challenges but that the stock price more than reflects these challenges.