FTSE 100 shares have largely rebounded from their lows. In fact, scanning through the index earlier, I was surprised how strong the rally has been. That’s in the context of declining UK and global growth forecasts in light of new US trade policy.
However, one stock that’s yet to recover is the index’s largest company — AstraZeneca (LSE:AZN).
Trump’s trade policy
Donald Trump has pledged to impose major tariffs on imported pharmaceuticals, aiming to encourage drugmakers to relocate manufacturing to the US. While Trump argues these tariffs will bring production back and bolster domestic jobs, industry experts warn they could drive up drug prices for Americans and disrupt established global supply chains. European pharmaceutical companies, many of whom already manufacture in the US, have expressed concern.
AstraZeneca shares have reflected this uncertainty, dropping around 8% over the past month. After all, reduced access to the US market, higher tariffs, or being forced to invest more in US production facilities wouldn’t be good for business. Recent figures suggest that AstraZeneca generates 42% of its sales in the US, but only manufacturers 22% of its products there.
Of course, my hunch is that these tariffs will eventually be limited. The cost to the American people, in the short and medium term at least, would be enormous. Paying more for already expensive drugs is not a vote winner.
What the numbers say
AstraZeneca’s current valuation reflects both its strong earnings growth and the sector’s defensive appeal. The forward price-to-earnings (P/E) ratio is forecast to decline from 29.1 times in 2024 to 22.9 times in 2025. This falls further to 16.4 times by 2027. In turn, this indicates expectations of robust earnings growth and improved profitability over the next several years. This trajectory brings AstraZeneca’s valuation closer to sector peers, after a period of elevated multiples.
The dividend yield stands at 2.36% for 2024. That’s slightly below the sector average but supported by consistent annual dividend increases and a payout ratio of 53%. This appears is sustainable given AstraZeneca’s strong free cash flow and earnings outlook. Free cash flow yield is projected to rise from 4.36% in 2024 to 6.61% by 2027, further supporting the dividend and potential share buybacks. Overall, AstraZeneca’s valuation metrics suggest a well-supported, growing income stream and improving value proposition.
More to consider
AstraZeneca’s investment case balances near-term regulatory risks against long-term growth ambitions. It recently announced a potential $8m in fines over import duties in China. This adds to existing challenges in a critical market, including prior scandals and trade tensions with the US. While the financial impact is modest relative to AstraZeneca’s $13.59bn Q1 2025 revenue, it underscores geopolitical risks in a region contributing 20% of sales.
Long-term, the company targets $80bn revenue by 2030, driven by 20 new drug launches, including Enhertu and Imfinzi, and expansion in oncology, biopharmaceuticals, and rare diseases.
Its operational resilience further bolsters the investment case. It has a global manufacturing footprint, including 11 US sites, and R&D investments like the new Beijing AI-driven research centre.
In short, while things haven’t been moving in the right direction for AstraZeneca in recent weeks, I’m confident in this business’s long-term strength. The current blip may even be an opportunity for me to buy more. I’m certainly considering this.
