Amgen Cuts Costs, Investors Cut & Run
Usually when a company announces cost cuts that will help improve cash flow and buoy profits, investors cheer and buy the stock. After the bell yesterday, Amgen revealed it's going to get rid of as many as 2,600 employees, cut its capital expenditures this year and next by nearly $2 billion and close or downsize plants. The measures are being taken to help absorb the blow from plummeting sales of Amgen's anemia drug, Aranesp, which is facing intense safety and reimbursement issues. This morning the stock is trading at a new multi-year low.
On the conference call, Chairman and CEO Kevin Sharer said, "Amgen's recent stock performance has been disappointing. We are more determined than ever to deliver for shareholders." But some analysts are not convinced.
Here are excerpts from the research notes crowding my inbox this morning:
- Joel Sendek at Lazard Capital Markets is maintaining his Sell rating and dropping his price target from $50 to $46. "We are disappointed that the company did not provide any revenue guidance, which was a departure from its usual approach." Lazard makes a market in AMGN.
- Les Funtleyder, the healthcare analyst at Miller Tabak, writes that while "it is positive that the company is making changes in the face of deteriorating business conditions, the business conditions are still deteriorating."
- Mike King at Rodman & Renshaw is telling clients, "We believe there could be additional downside (to Aranesp revenue)... Thus, we would continue to play the sidelines into 2008." The firm may make a market in AMGN and people who work there may own the stock.
- FBR's Jim Reddoch is lowering his price target to $56 from $59. He says, "Risk to guidance remains. Amgen seems to be going into a defensive mode and is more worried about the bottom-line consistency than top-line growth."
- And finally, in the bull camp, Geoffrey Porges at Bernstein, who a few days ago upgraded AMGN to Outperform with a $69 target price, writes "We view these (cost) reductions positively. They confirm management's commitment to maintaining cash flow, preserving earnings and delivering shareholder value." Bernstein also makes a market in AMGN.
Could Amgen try to deliver shareholder value by doing a deal? On the call the CEO said, "We can't discount the possibility of acquisition. But I don't have any thought of some giant thing that with one fell swoop will change the concentration of revenue. I can't figure out a way to do that which makes sense for shareholders. (But) we've got enormous financial firepower to do the right strategic stuff and we'll keep trying to do that."
Sharer ended his prepared remarks by saying, "This has not been an easy year or the one we expected. Great companies announce themselves in times of trial. We have proven ourselves in times of plenty and I know we will continue to do so in this time of trial."
Today, Amgen's market cap is around $53 billion. Its in-state, big biotech rival to the north, Genentech , is sitting at $77 billion in market value. I remember a time not too long ago when the two of them were nip and tuck, duking it out in the $90 billion stratosphere.
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