It’s never fun when you invest in a FTSE 100 stock then see it go down almost immediately. That’s what has happened for me with AstraZeneca (LSE: AZN).
After the pharma giant’s full year and Q4 2023 results today (8 February), the share price fell 7% to 9,736p (£97.31). I paid £104 recently.
Why has the market punished the stock?
The results are in
AstraZeneca was one of the handful of firms that came to the rescue during the pandemic with its Covid vaccine. While that supercharged revenue for a while, Covid-related sales have understandably been falling since.
We can see this in today’s results. Including Covid medicines, full-year revenue totalled $45.8bn, a 6% rise year on year in constant exchange rates. Excluding Covid sales, total revenue jumped 15%.
Since the third quarter, three new medicines were approved. And 12 blockbuster drugs brought in more than $1bn in sales during 2023. Cancer drugs made up 40% of overall revenue.
This helped core full-year earnings per share (EPS) increase 15% to $7.26. However, full-year EBITDA of $13.5bn was around $1bn lighter than analysts’ expectations. This was due to associated costs of new drug launches, higher R&D spending, and some price reductions in emerging markets.
So there was an earnings miss here and the full-year dividend was kept at $2.90 per share.
Why I invested
In the earnings release, chief executive Pascal Soriot said: “We expect another year of strong [double-digit] growth in 2024…Our differentiated and growing portfolio of approved medicines, global reach and rich R&D pipeline give us confidence that we will continue to deliver industry-leading growth.”
This perfectly sums up why I’ve invested. The firm is truly global, with a growing presence in China’s gigantic healthcare market. And its 2021 acquisition of Alexion Pharmaceuticals added treatments for rare diseases, where fewer approved treatment options exist.
Crucially for future growth, it has a huge 178 projects in the pipeline and remains on course for 15 new medicines by 2030.
Finally, I’m excited about artificial intelligence (AI) potentially revolutionising drug discovery over the next decade. AstraZeneca is making major R&D investments in this area.
Valuation
Analysts expect the company to generate EPS of $8.26 in 2024. This forecast puts the forward-looking price-to-earnings (P/E) ratio at around 15.
This compares favourably with peer Merck (17.3) and is a lot cheaper than other healthcare stocks like Novo Nordisk (35).
That said, the stock’s valuation is higher than FTSE 100 peer GSK (10), though that’s largely due to the latter’s litigation problems and lack of new blockbuster drugs.
On balance, I’d say the stock is fairly valued, assuming broker forecasts prove accurate, which isn’t always the case.
One risk I would highlight here though is the redesign of Medicare’s prescription drug coverage in the US, which could hit pharmaceutical profits.
I’m not worried
Ten years ago AstraZeneca set an ambitious target of $45bn in annual revenue by 2023. Having achieved that, it is now embarking on the next 10-year cycle to deliver “superior growth“.
This is how management thinks, in decades, which aligns with my own investing horizon. So I’m not worried by this small setback.
If anything, I’m restraining myself from purchasing more shares. And if I wasn’t already invested, I’d be buying on this dip.
