The AstraZeneca (LSE: AZN) share price soared in 2021 and this year. It’s now up 40% over the past 12 months, and up nearly 130% in five years. Some of that will surely be down to having its name attached to one of the most successful Covid-19 vaccines.
AstraZeneca has been working to reinvigorate its drug development pipeline and resume sustainable earnings growth. It’s not there yet, but a first quarter update gives us a glimpse of what’s on the horizon.
Astra expects a high teens percentage increase in revenue in 2022. And that should generate a mid-to-high twenties percentage rise in core EPS.
That’s impressive, especially after a 32% gain in core EPS in 2021. We saw a major difference between core and reported EPS for the year, with the latter coming in much lower.
The company put that down to the acquisition of Alexion, and various impairments and restructuring charges.
AstraZeneca share price valuation
On a core EPS basis, the current AstraZeneca share price suggests a trailing P/E of 25. Should the company’s guidance prove accurate, that would fall to 19 for 2022. And that looks a lot more respectable than any super-high P/E based on reported EPS.
It makes comparisons with GlaxoSmithKline more meaningful too. AstraZeneca has outstripped GSK over the past 12 months. But their valuations are not wildly far apart.
On 2021 underlying earnings, we’re looking at a trailing P/E of 16 for GlaxoSmithKline. There is clearly still a premium built in to the AZN share price though, possibly due to the coronavirus factor.
AstraZeneca’s first quarter saw a 20% rise in core EPS, at constant exchange rates. That doesn’t match up to full-year guidance yet, but it’s a good start. And a 60% rise in total revenue in the quarter bodes well for the rest of the year.
Oncology vs vaccines
Key development milestones during the quarter came from various cancer drug developments. Oncology revenue overall rose 25%, and that segment is the biggest contributor to total revenue.
Right now, I think the AstraZeneca share price might be a bit overvalued, based on Covid vaccine sentiment. But Astra’s vaccines and immune therapies (V&I) segment is well down the list in terms of size. In Q1, V&I revenue was only half that generated by oncology treatments.
I really do see the pharmaceuticals sector as a long-term cash generator. Due to the nature of the drug development cycle, it can take years and huge investment for new discoveries to come through. But that should be no problem for a long-term investor with a horizon of a decade, or more.
Buy on the dips?
I do expect to see AstraZeneca coming through the lean times, with a few drugs likely to hit blockbuster status in the coming years.
I just think the share price is too high right now, especially compared with GlaxoSmithKline’s valuation. Glaxo has been paying out around twice the dividend yield too.
So, for now, it’s a no for me. But I might buy on future dips.
