2014 has been a very interesting year for investors in AstraZeneca (LSE: AZN) (NYSE: AZN.US), with shares in the company rising by 28% since the turn of the year.
Of course, a key reason for such gains has been multiple bids from US rival, Pfizer, as well as a successful fight back against its patent cliff, with numerous acquisitions helping to put AstraZeneca’s pipeline back on a stronger footing.
However, positive results from the company during the course of 2014 have also improved sentiment, with today’s third quarter results being the latest in a series of upbeat updates.
Improved Guidance
The key takeaway from today’s results is that AstraZeneca has lifted its full-year top and bottom line revenue guidance for the second consecutive quarter. Indeed, the main reason for this is improved sales prospects for the company’s heartburn drug, Nexium, which was expected to come under greater pressure from generic drugs than has been the case.
This means that the sales potential of Nexium is higher than expected, with core earnings per share (EPS) for the full-year now due to be an improved 10% down on last year. Crucially, though, sales are set to rise by a low single digit percentage for the full year, which is highly encouraging news for investors and shows that AstraZeneca is turning its performance around.
In addition, AstraZeneca beat consensus forecasts for the third quarter, with EPS falling by a better than expected 13% at $1.05 (versus a forecast of $1.03) and sales being 5% higher year-on-year at $6.54 billion (versus a forecast of $6.41 billion). Of course, negative currency impacts of 5% are anticipated for the full-year, but the improved performance of AstraZeneca in recent quarters allows it to accelerate its investment in growth platforms and expand its pipeline, which bodes well for investors over the medium to long term.
Looking Ahead
AstraZeneca remains a company in the midst of a major turnaround. Certainly, its bottom line continues to fall, but there is now a significant amount of light at the end of the tunnel and the company’s drugs pipeline is moving from strength to strength. Furthermore, with AstraZeneca having the scope to expand its financial gearing levels, more acquisitions are likely and they will only enhance the company’s future prospects.
Despite this, shares in the pharmaceutical major continue to offer good value for money. Their price to earnings (P/E) ratio of 16.7 has the scope to go much higher and they remain a target for bid approaches – especially while many sector rivals are struggling to generate top and bottom line growth. Furthermore, shares in AstraZeneca currently yield an impressive 3.7% and, although dividend growth is taking a back seat to pipeline investment at present, dividends remain well-covered at 1.6 times, with an improving pipeline having the potential to raise them over the medium term.
So, with a string of upbeat results and full-year 2014 expected to be better than forecast, AstraZeneca looks highly enticing at its current price level. Indeed, it could continue to make highly attractive share price gains in 2015 and beyond.
