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Is It Still Safe To Buy AstraZeneca plc?

I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating. 

So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy. 

Today I’m looking at pharmaceutical giant AstraZeneca (LSE: AZN) (NYSE: AZN.US) to determine whether the shares are still safe to buy at 3,139p.

So, how’s business going?

AstraZeneca has fallen out of favour with the market during last year or so, as investors become more anxious about the company’s future. 

In particular, investors are worried about the company’s impending ‘patent cliff’, as AstraZeneca is going to lose the exclusive manufacturing rights to three of its key treatments during the next three years, which combined represent about 45% of the company’s sales.  

Thankfully, with so much of the company’s sales under threat, management has been quick to enact a turnaround plan. 

Indeed, as part of its plan to return to health, AstraZeneca has announced that it is going to cut nearly 10% of its workforce.  In addition, the company has been searching for strategic acquisitions, recently spending around $2 billion on three small biotech companies all with their own treatments in the latter stages of development.

Furthermore, AstraZeneca is hardly running low on ideas itself, with a strong pipeline of 84 new treatments, 13 of which are in the final stages of coming to market.

Expected growth

Unfortunately, while the company works hard to turn itself around, patent expirations and falling sales will continue dent earnings for the next few years. City forecasts currently predict earnings of $5.62 per share for this year (a fall of 12%) and $4.96 for 2014. 

Shareholder returns

AstraZeneca is well known for its strong dividend, and it appears this payout is not going to stop anytime soon. Indeed, the company’s dividend is covered around two-and-a-half times by earnings, giving the company plenty of room to maintain or even increase the payout. 

In addition, AstraZeneca’s dividend yield is currently 5.8% — larger than that of its peers in the pharmaceutical sector, which currently offer an average dividend yield of 4.6%. 

Valuation

Even though AstraZeneca is one of the largest biotechnology companies in the world, due to concerns over its future, the firm trades at a discount to its rivals. 

AstraZeneca currently trades at a historic P/E of 11, while its peers trade at an average historic P/E of around 15. 

Foolish summary

Overall, AstraZeneca is going to have a rough time during the next few years, as the company loses exclusive manufacturing rights to some of its key products. 

That said, the company is working hard to cut costs and has a full pipeline of new treatments in development. So, all in all, I believe that AstraZeneca still looks safe to buy at 3,139p.

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As well as AstraZeneca, I am also positive on the five FTSE shares highlighted within this exclusive wealth report.

Indeed, all five opportunities offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by the Fool as “5 Shares You Can Retire On“!

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In the meantime, please stay tuned for my next FTSE 100 verdict 

> Rupert does not own any share mentioned in this article.