The last month has been hard work for most stocks, but a month of real misery for some. The FTSE 100 is down 3.5% over the last month but these three companies are nursing share price falls of up to 15%. What went wrong and can they rediscover their good cheer soon?
AstraZeneca’s Drugs Problem
Pharmaceutical giant AstraZeneca (LON: AZN) is down 9.18% over the past month, a shock for investors in what is often described as a defensive sector. Full-year results published this week led to glum faces with news of a 1% fall in product sales (32% for heartburn treatment Nexium to $2.5bn), which knocked 4% off the shares in early trading. The patent on its anti-cholesterol drug Crestor expires in May in a major blow to 2016 profit forecasts, given that it is AstraZeneca’s “big boy”, with global sales of $5bn last year.
Chief executive Pascal Soriot will hope his much-vaunted drugs pipeline starts paying its keep soon. Things have looked promising on that front for some years but now that promise needs to fulfilled. AstraZeneca has been struggling to scale its patent cliff for years and some investors may find the uphill battle rather wearing. If so, a forecast 9% drop in earnings per share (EPS) this year will add to the gloom. I wouldn’t buy AZN at today’s surprisingly high valuation of 14.2 times earnings although I would hold and try to convince myself that today’s 4.6% yield is worth the pain.
Still A Prudential Investment?
Asia-focused insurer Prudential (LSE: PRU) has been one of my portfolio’s happy stocks but I’m not smiling now. It is down nearly 15% in the last month as Asia weakens and the feather in Prudential’s cap starts to look like a millstone around its neck.
The Pru has been further hit by reports that the Chinese foreign exchange regulator will tighten restrictions on purchases of overseas insurance products in a bid to stem capital flight. That knocked 8% off its shares on Tuesday although Barclays has since come to Prudential’s rescue, saying concerns are misplaced given that 96% of affected sales should be well below the rumoured cap, while Hong Kong represents only 3% of group earnings anyway. Prudential was due a rough patch and here it is, but it has knocked the valuation to a more reasonable 13.2 times earnings. With EPS forecast to rise 9% this year now could be a buying opportunity.
Rolls-Royce Catches A Flat
Engine-maker Rolls-Royce Holdings (LSE: RR) has backed itself into a corner, falling 7.5% in the last month and 41% over the year. News of a £1.9bn order from Norwegian Airlines has done a little to revive sentiment. Rolls-Royce was hit hard last month when Standard & Poor’s cut its debt outlook to ‘negative’ on weaker business prospects, as civil aerospace margins are being squeezed by the switch to less-profitable engine models and lower demand for business jets, while the marine business is hit by falling demand.
Its troubles are reflected in its valuation of just eight times earnings but a forecast 43% drop in EPS this year suggests tricky times lie ahead, especially with the global economy slowing. It could be some time before Rolls-Royce hits escape velocity.
