Its latest financial update hasn’t sent the AstraZeneca (LSE: AZN) share price soaring, but it has underlined why the share was one of last year’s star stocks.
AZN share in focus
AstraZeneca had been a performer at the stock markets even earlier, but last year put it directly under the spotlight. As the market crash occurred last March, panicked investors rushed towards safer stocks, like ones in the healthcare sector. The AstraZeneca share was so much in demand that by August, it touched all-time highs.
It dominated the news because of its Covid-19 vaccine, too. Developed along with the University of Oxford, it has quite literally been a life-saver. As this and other vaccines were successfully developed, investor confidence returned, and the stock market rally began.
It fell a bit out of favour as investors’ confidence returned in November. However, the AZN share price has only fallen from its new high levels. In 2021 so far it’s only about 6.5% lower on average than it was in all of 2020.
The stock can rise further
In fact, I think, going by both the share’s price trajectory over time and the company’s performance, that it can rise again. There are four reasons behind my thinking.
One, its results, which were released today. It has shown double-digit growth for both the full-year 2020 and the fourth-quarter of the year today. It also expects to continue showing a similar performance next year, although that is not certain, of course. Its core earnings per share (EPS) is up as well.
Two, speaking of EPS, AstraZeneca also pays a dividend. At present, the AstraZeneca share has a yield of around 3%. For 2021, it will maintain dividends at the current levels. But as a long-term investor, I’m hopeful for future increases in dividend if the EPS keeps rising. A growth stock with increasing dividends sounds good to me.
Competitive share price for AZN
Three, a relatively subdued share price and an increase in earnings also means that the price-to-earnings ratio (P/E) has also decreased. AZN now trades at 38 times. If I compare this to stocks like the FTSE 100 water and wastewater services provider United Utilities (UU), it looks relatively inexpensive. UU has an earnings ratio of almost 57 times. Similarly, Severn Trent (SVT) has a ratio of 48 times.
Four brings me to the future share price potential. If we think that the value of UU and SVT is the price associated with safe and financially healthy defensives, then the AZN share price can be expected to rise in the near future.
Risks and takeaway
There are, of course, always risks to buying any stock. The global economy isn’t out of the woods yet, AZN’s own vaccine isn’t effective against the South African coronavirus variants, and there’s always the possibility of another market crash. But on balance, I’m more in favour of the AZN share than not. In fact, it was my top stock for this month based on expectations of the good results that we saw today. It’s a good stock for me to buy.
Manika Premsingh owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.