Are Investors Betting On Pfizer Inc. Coming Back For AstraZeneca plc?

It’s hard to figure out why AstraZeneca plc (LON:AZN) rallied in the last few weeks of trading, argues this Fool.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A few analysts are puzzled about AstraZeneca‘s (LSE: AZN) recent rally, and so am I. The shares are up about 13% since 10 March — why is that? 

Rumours & Deals

There are “widespread rumours in the asset management community that Pfizer is considering another bid for Astra,” a senior banker in London told me this week.

That possibility was reinforced on Tuesday, when Teva Pharmaceutical made an unsolicited offer for Mylan; at $40bn, the deal could turn out to be the biggest acquisition in the pharmaceuticals industry in 2015 and could strengthen the position of Teva as the biggest generic drugs business on a global scale. 

The stars seem aligned for a Pfizer’s comeback — but are they, really? 

Performance

AstraZeneca is currently valued at 4,851p a share, which is in line with the level it recorded in early May 2014, when investors were eager to bet on a successful outcome for Pfizer’s proposed offer. By late May, however, Astra had rejected Pfizer’s £70bn proposal, noting that the bid had undervalued its growth potential. 

AstraZeneca’s shares tumbled 13% to £42.04 on the news, wiping about £8bn off the company’s market value as investors concluded that the chance of a deal was now remote,” The Guardian reported at the time. 

How serious is the risk that Astra stock will dive again?

Even after its recent rally, Astra is up only 6% this year, which is a poor performance compared to Shire (+22%) and Glaxo (+13%), and is also a couple of percentage points below that of the FTSE 100.

Pfizer/Results/Drugs

I think that Pfizer won’t make any comeback as tax-driven deals appear to be off the table, so there are two elements you ought to take into account right now: first-quarter results, which are due on Friday, and Astra’s pipeline of drugs. 

On the face of it, 2014 quarterly figures are relatively easy to beat, so I would not be surprised if good news surrounded Astra in the wake of the announcement. That may contribute to short-term upside, but it’s hard to believe capital appreciation would be greater than 1% to 1.5% on the day, regardless of how the market performs. 

Let’s consider its drugs pipeline, then: there has been much talk of upside potential for cardiovascular pill Brilinta in recent weeks. Astra has been talking about Brilinta for a very long time and has been investing hugely in its development. So, is that the reason why Astra stock is on a roll?

Heavy investment should be a real concern, as virtually nobody in the market believes in Brilinta, and hasn’t done for a long time. If anything is going to push the stock up it’s M&A, or oncology,” a second senior analyst in London pointed out, ruling out M&A upside. 

Oncology? Well, is that behind the rally, then? 

Its oncology pipeline could be a factor, and in particular its checkpoint inhibitors…anti-PD1, anti-CTLA4 and others, but here it gets a bit sciency!” the analyst concluded, noting that “lots of study data” is shortly coming up at the ASCO conference both for Astra and such competitors such as Bristol-Myers Squibb, Merck and Roche.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »