As the AstraZeneca share price dips on results day, I ask if the stock is too high

Earnings are up in 2023, but the AstraZeneca share price just fell. Is the love affair with the Covid vaccine days finally coming to an end?

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The AstraZeneca (LSE: AZN) share price dropped 6% in morning trading on 8 February, on the back of full-year results for 2023.

The results weren’t at all bad. But I do wonder if the market has run away with the share price a bit.

AztraZenenca shares have zoomed ahead of rival GSK in the past five years — you know, the rival that didn’t have a Covid vaccine named after it.

Covid revenue fall

AstraZeneca reported a $3,736m fall in revenue from Covid medicines, though it did still enjoy an overall 6% revenue rise.

Excluding the Covid vaccine, we saw a 15% revenue rise, so the rest of the company’s range of products seem to be doing fine.

Core earnings per share (EPS) rose 15% at constant exchange rates. The dividend, though, was kept at the same $2.90 per share as last year, which might well be behind the lukewarm reaction.

The board expects both revenue and core EPS in 2024 to “increase by a low double-digit to low teens percentage“.

R&D focus

That sounds like a very solid outlook to me. But I just can’t help seeing the valuations of the FTSE 100‘s two big pharma firms as being out of line.

AstraZeneca does look like it might have a more attractive pipeline of drugs coming through. And that’s got to be thanks to CEO Pascal Soriot, who’s turned the company round since his arrival in 2012.

Hmm, that seems like only yesterday to me. It took time, but his strong refocus on R&D has led the firm to make big strides.

Even since the end of the 2023 year, we’ve seen multiple approvals and other regulatory advances. And a whole bunch of it is in cancer drugs, which I reckon could easily become the next blockbusters.

High valuation

But AstraZeneca shares come at a high price these days.

The stock’s on a forecast 2024 price-to-earnings (P/E) ratio of about 23. That might well be justified if the pipeline promise bears fruit.

But we’re looking at only around half that for GSK, which also has solid earnings rises forecast for the next two years. And GSK reported very similar levels of sales and earnings growth for 2023 too. Oh, and it raised its dividend.

Still, judging AstraZeneca by this comparison is possibly not fair.

Billion dollar drugs

AstraZeneca has 12 medications right now (excluding Covid vaccines) that reach more than $1bn in sales per year.

That includes some key cancer drugs, together with diabetes and immune treatments. All in all, it looks like a medicine chest that’s perfect for ageing first-world populations.

So, all in all, the two-year outlook might make the stock a buy at today’s prices. I do, however, think we could see more fallout as the love affair with the Covid stuff fades further.

And if AstraZeneca might look good, I think I need to consider buying GSK shares at their much lower valuation too.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc and GSK. 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.

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