As of October 8th, 2021, AstraZeneca (LSE: AZN) shares closed at £88.89 per share on the London Stock Exchange, up 8.76% over the past month alone, outperforming the FTSE 100 index, which has grown only 0.94% over the same duration. AstraZeneca is a British-Swedish multinational pharmaceutical and biotech company headquartered in Cambridge, UK. The company is most known for its Oxford/ AstraZeneca vaccine, which was developed late 2020 in response to the Covid-19 pandemic.
What do the professionals think?
AstraZeneca received a Composite Rating of 77 out of 99 in September 2021 by Investor’s Business Daily, which places the equity ahead of two-thirds of all stocks. Composite Rating is an overall score based on earnings-per-share, sales growth, profit margin growth, return on equity, S&P 500 performance, and institutional buying and selling.
Further, surveys from 14 analysts offering 12-month price forecasts for AstraZeneca had a median target of £94.60 with a high of £105 and £69.50, suggesting that based on this consensus AstraZeneca is trading 6.4% below its price target. The lower price targets are predominantly due to controversy around the efficacy of the AstraZeneca vaccine.
Never undermine the value of debt
Large accumulations of debt can be an indicator of bad operational efficiency within a company, as seen recently via Evergrande, but for biotech and pharmaceutical companies, debt is necessary. As of June 2021, AstraZeneca’s net debt stands at US $29.2 billion. However, research and development are core to biotechnology and pharmaceutical companies because innovation is financed by debt.
Though it can take on average 10 years to get develop a drug and take it to market, AstraZeneca has recently developed an asthma treatment, which has now received priority review in the US. If approved, AstraZeneca will generate a large revenue source through a key solution in the fight against asthma which affects 300 million people worldwide.
Strong revenue growth and diversification
More recently, the Oxford/AstraZeneca vaccine has proven to be a strong weapon in the fight against the Covid-19 pandemic as well as a strong revenue source for the multinational pharmaceutical company. 2020 annual revenues rose to US$26.62 billion, up 9.2% year on year, and Q1 2021 revenues were up 11% from Q1 2020, with 4% of quarterly revenue from the Oxford/AstraZeneca vaccine.
AstraZeneca is also one of the most diversified medical companies with operations in several fields of study. Diversification is a key indicator of resilient profitability despite variations in product demand. As we move into a post-pandemic world, demand for Covid-19 vaccines will inevitably decline, hence a diversified product portfolio means that AstraZeneca does not rely on its Covid-19 vaccine as a source of revenue.
Insider activity can give insights on company outlook
Company insiders at AstraZeneca own roughly 0.08% of stock amounting to around £90 million of the company’s market capitalisation. Over the past year, insider share buying has surged whilst sell-offs are non-existent. Notably, non-executive director Philip John Broadley bought £100k worth of shares at a price of £76.25 per share. Considering significant internal purchases of company equity and no recorded selling of AstraZeneca shares, this can inform investors that their long-term objectives are aligned with management. As a result, I’m strongly considering adding AstraZeneca shares to my portfolio!
