Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at AstraZeneca plc (LSE: AZN) (NYSE: AZN.US) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not Astra’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
At present, it would appear that the market is excited about Astra’s future as it has emerged during the past few days that pharmaceutical giant, Pfizer has approached Astra with a $100bn-plus bid to acquire the recovering biotechnology giant.
Unfortunately, this is bad news for prospective investors, as it means that Astra’s share price is now trading at a level that makes the underlying company look extremely expensive.
What’s more, without any guarantee that a deal with Pfizer will go ahead, investors looking to buy in now could be left high and dry if it emerges that Pfizer is no longer interested.
Upcoming catalysts
So then, if we ignore the deal chatter between Astra and Pfizer, does Astra have any upcoming catalysts that are likely to push the company’s shares higher from current levels?
Well, Astra has outperformed during the last few months thanks to renewed optimism about the company’s experimental cancer therapies.
Astra is also driving hard to expand its pipeline of new treatments and the company has reportedly doubled its pipeline of late stage treatments during the past year. In addition, early-stage trials of the company’s immuno-oncology treatment, which aims to treat cancer patients by boosting their immune system, have pleased investors.
Sadly, this cancer therapy is not expected to file for regulatory approval much before 2017. Actually, Astra does not expect to have any new products file for regulatory approval before 2016.
What’s more, Astra’s own management does not believe that the company’s sales will return to growth until 2017, when new treatments come to market. As a result, over the next three years sales are going to decline further, before they start to move higher.
Still, Astra reported that Chinese sales jumped, 13% and 21% in the third and fourth quarters of last year respectively.
Valuation
With bid rumours swirling around, Astra’s shares are not cheap and currently trade at a forward P/E of 15.8, despite the fact that the company’s earnings are set to decline around 20% during the next two years. This high valuation and Astra’s falling earnings are enough to put me off the company’s shares.
Foolish summary
So overall, I feel that AstraZeneca is overvalued at current levels.
