AstraZeneca (LSE: AZN) has proved to be one of the FTSE 100’s big success stories of 2019. It has gained a whopping 33% in value since the turn of January, and the very same factors that have propelled it in the outgoing year look set to remain in place in 2020.
Demand for safe-haven stocks like pharmaceuticals manufacturers has been strong in 2019, the indispensable nature of their products providing the sort of earnings visibility that few others can match in turbulent times like these.
Issues like US-China trade wars, British politicians flirting with a so-called Hard Brexit, and worsening economic data from Asia and Europe have all boosted the likes of AstraZeneca recently, and these topics remain at the forefront of investors’ minds as we move into 2020.
Pound pressures
It’s worth mentioning the extra benefit that fears of a disorderly Brexit could have on AstraZeneca next year, such as a possible drop in the pound. The drugs giant does its reporting in US dollars and thus any sterling weakness provides profits with an additional tailwind.
Now the pound has been remarkably resilient in 2019 despite those continued tensions over the UK’s future relationship with the European Union. In fact, as I type, the British currency is up against those other major currencies, the euro and the greenback, surging from early October onwards as first a no-deal Brexit was taken off the table for mid-autumn, and then the Conservatives marched to victory at this month’s general election.
That said, it hasn’t exactly been a cakewalk for the pound in 2019. Let’s not forget that it slipped to multi-year lows against both the dollar and the single currency over the summer as fears of that no-deal Brexit reached fever pitch. And the chances of a Hard Brexit have risen markedly in recent days after Prime Minister Boris Johnson wrote into law that the UK will leave the European Union at the end of 2020, whether or not a trade deal is agreed upon.
Sales are soaring
It’s clear that the broader geopolitical and macroeconomic landscape should remain conducive for more share price gains for AstraZeneca in 2020. Though this is clearly only one half of the story, as recent data shows that 2019 has proved to be a blockbuster year for the company’s revenues column.
In Q3, sales of its new medicines jumped 62% to $2.7bn, underlining the impressive steps it has taken in recent years to rejuvenate its product pipeline. News today that it had received regulatory approval for new drugs in US and the China, for COPD and breast cancer respectively, accentuates the sense of strong momentum the Footsie firm has going into 2020.
City analysts expect earnings growth at AstraZeneca to accelerate to 19% in 2020 from 3% this year, illustrating the exceptional progress it’s making on the sales front. It might trade on a high forward P/E ratio of 24 times, but the strong chance of roaring profits growth well into the next decade makes the pharma ace worthy of such a premium, in my opinion.
