Despite being in the midst of coming to terms with the loss of several key, blockbuster drugs, shares in AstraZeneca (LSE: AZN) (NYSE: AZN.US) have performed remarkably well in recent years. For example, after hitting a low of £25.92 in June 2012, they have risen by over 70% in just three years. That’s a stunning rate of growth and, while at least part of that has been a result of bid rumours and bid approaches, it shows that investors in the company are looking at the long term future for the business, rather than its present performance.
Future Potential
Clearly, AstraZeneca remains a long way off its previous levels of profitability. For example, even back in 2011 AstraZeneca was posting earnings per share of £4.85. This is 1.75 times its current level of earnings of £2.77 and shows just how severe its demise has been.
However, with AstraZeneca changing its strategy in recent years and deciding to go on the offensive so as to replace lost sales, its long term future has considerable potential. For example, it has purchased assets such as the other half of its diabetes joint venture with Bristol-Myers Squibb and this forms part of a repositioning of AstraZeneca, as it seeks to focus on illnesses and health problems that represent significant growth areas across the globe in the long run.
For instance, the number of Americans expected to have diabetes in 2050 is set to be 165% higher than in the year 2000, with this trend expected to be followed across much of the developed and developing world. This presents a tremendous opportunity for AstraZeneca to develop drugs to counter the effects of diabetes, with this being just one example of how the company’s pipeline looks set to benefit from being exposed to growth areas over the long run.
Valuation
Despite its share price rise, AstraZeneca still offers good value for money. For example, it trades on a price to earnings (P/E) ratio of just 15.9, which is slightly below the FTSE 100’s P/E ratio of 16. And, while the next couple of years are expected to see its bottom line come under pressure, the company appears to be doing all of the right things to turn its performance around and is set to deliver growth from 2017 onwards.
Sector Peers
Clearly, there are a number of other top notch pharmaceutical companies within the FTSE 350. One prime example is BTG (LSE: BTG). It offers very different characteristics to AstraZeneca, with it being a strong growth play right now, with BTG’s bottom line expected to rise by 25% this year and by a further 50% next year. And, while it does trade on a P/E ratio of 35.7, its price to earnings growth (PEG) ratio of 0.5 indicates that its shares could move much higher.
Similarly, Genus (LSE: GNS) and Dechra (LSE: DPH) are expected to post excellent gains during the next two years. Their earnings are forecast to rise by 30% and 20% respectively during the period, although their PEG ratios of 1.9 and 2.2 respectively indicate that there is far less upside potential than for BTG. As such, BTG seems to be the pick of the three smaller companies.
However, with AstraZeneca’s pipeline on the up and the company having the potential to make further acquisitions, it remains a better buy than BTG. And, with AstraZeneca having bid potential of its own, as well as a very appealing valuation, its future performance could be superb and this makes it a very strong buy at the present time.
