Carl Icahn or Wall Street Analysts

Amgen and Gilead both fall into the large cap biotech value category. Recently, they have taken divergent paths as Amgen is returning capital to shareholders by initiating a dividend and a $5 billion tender offer. Gilead, on the other hand, announced an $11 billion acquisition of a company that won't show profits until 2015 and suspended share repurchases. Wall Street analysts loved Gilead's takeover and there have been too many upgrades to count. Amgen has been downgraded three times since their tender announcement.

Gilead started aggressively repurchasing shares last Summer at $32. Analysts hated the stock and the downgrade parade began. Since then the stock jumped to over $40, outperforming both the market and its biotech peers by a wide margin. Yesterday, Gilead reversed its strategy and the stock gave up nearly half its gains since last Summer. Analysts loved the move and the upgrade parade began.

Carl Icahn recently won a board seat at Amgen. His fingerprints are all over this tender offer as it is the same strategy that Biogen underwent, another Icahn investment. Amgen will trade at a little over 9 times forward estimates after the repurchase. Analysts hate the strategy and are downgrading the stock to no end. They believe Amgen should make large acquisitions rather than returning cash to shareholders.

Carl Icahn's motivation is to make a profit on his investment. Analysts motivations are questionable as i-banking does not make money when cash is returned to shareholders but makes a fortune on takeovers. Who do you trust, Carl Icahn who made a fortune over the course of his life or Wall Street analysts who never managed money and are conflicted?

 

5 comments:

Anonymous said...

The 10 Day advance/decline is at one of it's lowest levels of the past year. Any thoughts?

Tsachy Mishal said...

The problem is that we will be dropping large positive numbers Friday and Monday so we wont be maximum oversold until the end of the day on Monday.
However, typically there is a bounce before we get maximum oversold and we have not seen that yet. Its very unusual to get maximum oversold without a bounce somewhere although it did happen in August.

Wednesday links: a much needed break | Abnormal Returns said...

[...] The biotech dilemma: buy or dividend?  (Capital Observer) [...]

Wednesday links: a much needed break | My Blog said...

[...] The biotech dilemma: buy or dividend?  (Capital Observer) [...]

Surprise, Surprise said...

[...] few weeks ago I wrote a post titled, Carl Icahn or Wall Street Analysts, which highlighted the divergent paths Amgen and Gilead were taking. Amgen was returning cash to [...]