The AstraZeneca (LSE: AZN) share price got a modest boost Tuesday morning (29 July) from first-half results, up 2% at the time of writing. It’s been effectively flat for around three years, so maybe the valuation had been getting a bit rich?
The shares got a push from AstraZeneca’s vaccine efforts in the Covid pandemic. But they’d already been gaining prior to that. And the long-term rise has pushed the forecast price-to-earnings (P/E) ratio to 23 for the current year.
Forecasts have it falling to under 17 by 2027 based on earnings growth, and that’s not much above the long-term FTSE 100 average.
Strong half
The company saw an 11% rise in revenue in the half, to $28,045m. It was “driven by double-digit growth in oncology and biopharmaceuticals.” And it led to a 17% increase in core earnings per share as core operating profit rose 13%. The interim dividend is up 3% to $1.03 per share.
Reiterated full-year guidance suggests a high single-digit percentage rise in revenue. And core EPS is expected to grow by a low double-digit percentage.
This all sounds strong in the short term, and it’s clearly been a solid half and second quarter. But the long-term future depends on drugs coming through the pipleline. The research and development cycle is a long and expensive one.
Kicking the product pipeline back into action was the key goal when CEO Pascal Soriot took control in 2012. And so far he’s turned the company around impressively, after it had been suffering from patent expiries.
This time he said “the delivery from our broad and diverse pipeline has been excellent” and noted “12 positive key Phase III trial readouts including for baxdrostat, gefurulimab, and Tagrisso in just the past few weeks.”
The update includes tables showing impressive numbers of trial results and regulatory approvals in the period since the previous results.
Targeting the US
The CEO added that AstraZeneca has committed $50bn towards growth in the US, including the company’s biggest manufacturing investment planned for Virginia. Apparently it “reflects … America’s importance.” And perhaps a bit of fear over President Trump’s threatened huge tariffs on imported pharmaceuticals?
I see some level of risk in expanding in the US where the Health Department is headed by Robert F Kennedy Jr. He doesn’t exactly seem too sold on vaccines. Still, he appears to have softened his earlier firebrand stance since taking on the role. And the time horizon for pharma development should be a good bit longer than the life of the second and final Trump administration.
If it helps to achieve the ambition for $80bn revenue by 2030, I expect shareholders will see it as a good investment.
AstraZeneca clearly faces risks. In any pharma firm, a single costly drug failure could definitely hurt the share price. But if the P/E falls as forecast in the next few years, I could see a reasonable safety margin building up.
I suspect the share price might take some time to get moving again. But if the forecasts are on target, it could soon start to look cheap. Definitely one to consider, I reckon.
