Amgen ( AMGN) put up 4% earnings growth on flat revenue. They did it with fewer shares and tight expenses. Epogen and Aranesp revenue is declining, with the full impact of new restrictions on the anemia drugs not yet being felt.

Tell me again why there is reason to be bullish on Amgen?

I posted this question last night in RealMoney's Columnist Conversation after Amgen reported third quarter earnings. Reader Steve R. responded:

"Perhaps because the market has whacked the stock, the valuation is dirt cheap and perhaps they will have a few good drugs in the future! If Amgen was trading at 20-30 times earnings, sure, but I believe it is trading at 14 times earnings. Would you rather buy at 90 when expectations are high or 55 when there are very low expectations?"

Steve's right. The stock has been whacked, down 23% from its recent high in January. At Wednesday's closing price of $58.13, the stock is trading at 13 times estimated 2008 earnings per share of $4.36, and expectations are low.

But where Steve sees value, I see a value trap. If we assume the Street's crystal ball for Amgen's future earnings is accurate (and I think that's a very risky assumption,) the company will post earnings growth of 8% this year, 4% next year and 10% in 2009.

I'm sorry, but that's weak growth for a company that clings to the notion that it's still a member in good standing of the biotech club. I don't see why a 13-14 multiple is justified for a company with single-digit earnings growth, especially one that will get there mainly by cutting costs and buying back shares.

How about a 10-11 multiple? That makes Amgen a $42-$46 stock.

That's where Lazard Capital Markets analyst Joel Sendek thinks Amgen should trade. He has a sell rating on the stock and a $46 price target. Lazard doesn't have a banking relationship with Amgen. Sendek's sell stands out because you don't often see a sell rating on a big cap biotech stock. Hold is a very popular rating for Amgen these days, which seems to be taking the easy way out.

Sendek's bearish thesis seems spot on to me. He has been talking to commercial (private) payors about reimbursement for Epogen and Aranesp. They tell him that they're considering policies that will further restrict the use of both drugs, certainly in cancer patients and potentially in kidney disease patients as well.

Medicare has already made it clear that it's not about to revise its new, stingy guidelines for the use of anemia drugs in cancer patients. On last night's conference call, Amgen suggested that private payors might have little choice but to follow the public sector.

If that occurs, Sendek says Amgen's anemia drug franchise will wither away slowly. There won't be a dramatic drop off, just a steady bleed over the next quarters and years that won't let anyone call a bottom.

"It's usually better for companies when they take severe pain in a single quarter, then reset and start growing again," says Sendek. "But with Amgen, I think there will be a long drag down in the company's most important franchise, which is the worst-case scenario."

Consensus estimates call for Aranesp sales to fall 17% next year. Epogen sales are expected to fall 4% next year and drop another 2% in 2009. Sendek believes these estimates are overly optimistic.

"I've got Amgen growing earnings by 6% through 2010. I can't justify a 14 multiple when EPS growth is half that," he says.

If Medicare reverses course and decides to allow much more Aranesp use in cancer patients, Sendek says he'll change his mind and slap a buy on Amgen. But at this point, the odds of that happening are slim.

This is not the first time that Sendek has stood up alone to make a major bear call on a big cap biotech firm. In 2003, he made a great call when he tagged Medimmune ( MEDI) with a sell because he didn't believe all the hype around the company's nasal flu vaccine. Flumist flopped.

I think he gets Amgen right, too.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.