Only around five months ago, AstraZeneca’s (LSE: AZN) share price hit a point that made the firm the UK’s first £200bn listing.
Now, it is down 20% from its 3 September 12-month traded high of £133.38.
I think three key reasons will propel it much higher again over time.
Enormous earnings growth potential
Ultimately, it is earnings growth that powers a firm’s share price (and dividend) higher. Analysts forecast that AstraZeneca’s earnings will grow by 16.9% each year to the end of 2027.
Its nine-month results saw its 2024 earnings per share (EPS) growth forecast increase to a high-teens percentage from the mid-teens. This came after an 11% jump in EPS over the period to $6.12 (£4.97).
And both followed a 19% increase in total revenue, to $39.182bn. Revenue is the total income a company generates, while earnings are what remains after expenses are subtracted. In the long term, AstraZeneca forecasts $80bn+ in revenues by 2030, against $45.8bn at the end of 2023.
Positioned for a major demographic shift
According to the World Health Organization, 1.4bn people will be aged 60+ by 2030 compared to 1bn now. By 2050, that number will be 2.1bn. At that point, the number of people aged 80+ will triple to 426m.
As older age brings declining health, the demand for medical assistance, including drugs, increases.
AstraZeneca currently has 189 new drugs at various stages of development in its pipeline. By comparison, its leading UK peer GSK has 71.
Moreover, the firm announced at its 15 November ‘Health Equity Event’ that it is working on multiple game-changing new medicines. These focus on cutting-edge areas such as smart chemotherapy, gene therapy and editing, and next-generation immunotherapy.
Extreme current undervaluation
On the key price-to-book ratio of stock valuation, AstraZeneca trades at only 5.1. This is bottom of its competitor group, which averages 32.9. So, it looks very undervalued on this basis.
The same is true on the price-to-sales and price-to-earnings ratios. On the former, it trades at just 4 compared to its competitors’ average of 11. And on the latter, it is at 31.7 against a 53.9 average for its peers.
A discounted cash flow analysis shows the shares are currently 60% undervalued. Therefore, technically a fair price is £266.18 rather than the present £106.47.
They may go lower or higher than that, given market vagaries. But it underlines to me that they look a steal at the current price.
Will I buy more?
Against all this are two main risks in my view. The first is the possibility of penalties being imposed when Chinese authorities conclude their investigations of its China operations.
The second is legal action for damages from AstraZeneca’s alleged failure to inform investors early enough of these investigations.
That said, AstraZeneca raised its key performance guidance after China launched its investigations. Additionally, I see legal action against pharmaceutical firms as already largely costed into that business and the share price.
Consequently, I will be buying more AstraZeneca shares very soon.
