tiprankstipranks
AstraZeneca: Strong Growth, Balanced Pipeline, Rich Valuation
Stock Analysis & Ideas

AstraZeneca: Strong Growth, Balanced Pipeline, Rich Valuation

AstraZeneca Plc (AZN) is a leading global pharmaceutical company engaged in delivering life-changing medicines. The company produces and commercializes medicines for cancer, gastrointestinal, cardiovascular, neuroscience, oncology, respiratory and inflammation, and other infectious diseases. AstraZeneca PLC was founded in 1992 and is headquartered in Cambridge, the United Kingdom.

In 2021, shares of AstraZeneca had gains of 19.7%, underperforming the Nasdaq, which gained 21.4%. I am bearish on AZN stock despite its balanced pipeline and strong Q3 2021 financial results, as the operating profit was negative, and the valuation is rich.

AstraZeneca Business News

AstraZeneca has a strong portfolio with 175 projects in its pipeline. “AstraZeneca has closed a global development and commercialization agreement with Ionis Pharmaceuticals, Inc. (Ionis) for eplontersen, formerly known as IONIS-TTR-LRX. The companies will jointly develop and commercialize eplontersen in the U.S., while AstraZeneca will develop and commercialize it in the rest of the world, except in Latin America.”

A University of Oxford study has shown that AstraZeneca’s COVID-19 vaccine Vaxzevria “significantly boosted levels of antibodies against the Omicron SARS-CoV-2 variant (following a third dose booster.”

The Omicron variant of COVID-19 remains an unknown factor for the pandemic and its resilience in 2021, transiting into 2022 amid global vaccination programs. The pharmaceutical company announced that “Evusheld long-acting antibody combination retains neutralizing activity against Omicron variant in studies from Oxford and Washington Universities.”

Another medicine, Tezspire (tezepelumab) was approved in the U.S. market to treat severe asthma.

Recent Earnings: Q3 2021 Delivered Strong Revenue Growth

In Q3 2021, AstraZeneca reported that Oncology, CVRM, and Respiratory & Immunology all delivered double-digit growth of 17%, 13%, and 25%, respectively. Total revenue, excluding vaccines, was $8,816 million, increasing 32% year-over-year. Total revenue, including Pandemic COVID-19 vaccines, was $9,866 million, growing 48%.

Across geographies, (excluding COVID-19 vaccine) the largest growth reported was in the U.S. market with a figure of 53%, followed by Europe, with growth of 36%. The lowest growth reported was in China, with a figure of 2%. Notably, the majority of AstraZeneca’s vaccine production against COVID-19 is distributed to low-and middle-income countries.

AstraZeneca updated its 2021 guidance to low 20’s percentage total revenue increase (excluding COVID-19 vaccines) and mid-to-high 20’s percentage increase when including Q4 COVID-19 vaccine sales. AZN also expects core EPS to be $5.05 to $5.40.

The reported EPS and operating profit were -$1.10 and -$1.67 billion, respectively. In comparison, the Core EPS and operating profits were $1.08 and $2.28 billion, respectively.

Last Year’s Acquisition of Alexion Pharmaceuticals Still Needs Time

In July 2021, AstraZeneca completed the acquisition of Alexion Pharmaceuticals, Inc for $13.3 billion in cash and 236,321,411 new AstraZeneca shares.

Alexion specializes in medicines for rare diseases, which presents another business opportunity for AstraZeneca to explore. This acquisition has its risks and costs, and it remains in the next few quarters to evaluate its dynamics. Rapid debt reduction is a priority post-Alexion transaction.

Fundamentals: Some Metrics Have Declined in Past 12 Months

AstraZeneca saw an improvement in operating margin, net margin, and gross margin in Fiscal Year 2019 and 2020 but a sharp decline on a TTM basis. The Alexion acquisition has set new challenges and capital allocation priorities.

Important priorities are rapid debt reduction, progressive dividend policy, and reinvestment in the business. The firm has been strengthening its balance sheet by lowering its debt-to-equity ratio from 1.4 in 2018 to 0.7 in the latest quarter. However, there is a big problem: the dividend payout ratio of AstraZeneca PLC is 58.5%, which is high.

To reinvest in the business, the firm may have to lower its dividend payout ratio drastically. AZN stock dividend history shows that its dividend yield has declined significantly over the previous years. This is due to the share price rallying. Dividend stocks are considered safer investments when they have a stable dividend history, and AZN’s payouts have been pretty stable.

Also, AstraZeneca has reported a positive and strong free cash flow trend, adding to the stability.

Valuation: Lofty Price

AstraZeneca’s P/E Ratio (TTM) of 107x seems very high compared to the P/E ratio of around 29x for S&P 500. Its forward GAAP P/E ratio of 108.8x is higher than the median Health Sector forward P/E ratio of 31.3x.

Wall Street’s Take

Turning to Wall Street, AstraZeneca has a Moderate Buy consensus rating, based on two Buys and one Hold assigned in the past three months. There have been no price targets assigned by analysts in the past three months.

Download the TipRanks mobile app now, available on iOS and Android.

Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles