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Why I Hate AstraZeneca plc

There is something to love and hate in almost every stock, but sometimes the hate outweighs the love. Today, that’s the case with AstraZeneca (LSE: AZN) (NYSE: AZN.US). Here are five reasons why.

Where did the growth go? 

If you had invested in AstraZeneca three years ago, you would now be sitting on a loss of nearly 5%. In that time, the FTSE 100 rose 15% and pharmaceutical rival GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) was up a healthy 22%. That’s serious underperformance by AZN. The slide has continued with a 6% fall in the past six months, against a 5% rise on the FTSE 100. Reversing this will take time.

Too much bad news

Most companies like to bury the bad news in their results. AstraZeneca doesn’t have that luxury. Its recent results headlined a 4% drop in Q2 revenue to $6.23 billion, largely due to loss of exclusivity on several key brands, which wiped out around $500 billion of revenue. Core operating profit was down 10% to $2.06 billion, while core earnings per share (EPS) fell 21% to $1.20. Pricing pressure in Europe hasn’t helped, either. You can praise management for its honesty, if little else.

It’s a long road to recovery

Pascal Soriot, chief executive officer, has put on a brave face, claiming “real progress” against AZN’s strategic priorities, with its investment in distinctive science, pipeline projects and key markets delivering double-digit revenue growth. Bringing new prescription drugs to market is a precarious business, with many a slip between pipeline and profit. As a pure pharmaceuticals group, without the diversification that Glaxo’s consumer healthcare division gives it, AstraZeneca has to get this right.

This stock is all yield

One of the benefits of a falling share price is a rising yield, so you won’t be surprised to see that AstraZeneca now yields a highly likeable 5.6%, against Glaxo’s 4.7%. But what I don’t like is that the first interim dividend was exactly the same as last year. No progression there. Management also decided there would be no share repurchases this year, claiming it can put the money to better use by investing in the business. Let’s hope so.

Growth still looks scarce

AstraZeneca is on a forecast 21% drop in earnings per share (EPS) this calendar year. 2014 should see a smaller fall of 6%, but that’s still a fall. Throw in a 12% drop in 2012, and EPS look set to fall across three consecutive years. The result is that you can buy AZN at just 7.8 times earnings, almost half Glaxo’s valuation of 14 times earnings. AstraZeneca may suit patient contrarians, but these embarrassing figures show just how far it has fallen behind its big rival in recent years.

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> Harvey owns shares in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline.