AstraZeneca (LSE: AZN) shares wobbled a bit Wednesday morning (29 April), even though the pharma giant reported more than $15bn in first-quarter revenue. The results beat expectations, and the company reaffirmed its positive full-year guidance.
CEO Pascal Soriot told us the company is “on track to achieve our ambition for 2030 and beyond.”
The share price dipped a couple of percent, edging into negative territory year to date. But AstraZeneca is still up 19% over 12 months — and has soared 85% in the past five years. Let’s dig in and see what’s happening…
Double-digit growth
The company reported a 5% rise in core earnings per share. And the board says it expects mid-to-high single-digit revenue growth and low double-digit core EPS growth for the full year.
It’s hard to think of a better example of how a long-term plan can outstrip short-term earnings targets than AstraZeneca. And it’s all thanks to the stunning turnaround Pascal Soriot kicked off when he took on the challenge in 2012. AstraZeneca needed to focus on getting its research pipeline up to strength. And the new boss made it clear it would need time and patience.
As an aside, an investor who put £5,000 into AstraZeneca on the day Soriot became boss would today be sitting on shares worth £23,550, by my calculation.
What’s next?
Looking at these results, I’m struck by one part of what the CEO said.
We are advancing through our catalyst‑rich period, with positive readouts for four high-value Phase III programmes since our last quarterly results, including first pivotal data for two key NMEs – tozorakimab in COPD and efzimfotase alfa in hypophosphatasia.
Expertise in oncology and rare diseases lies behind AstraZeneca’s success. And these new developments, with the boss talking about multiple launches in preparation, convince me the company still has its eye on the ball — and its sights set on long-term growth.
There’s a strategic collaboration with CSPC Pharmaceuticals too, “to advance the development of multiple next-generation therapies for obesity and type 2 diabetes.” AstraZeneca will invest $1.2bn upfront.
Potential pitfalls
An aggressive drug research pipeline is, however, in part a case of running to stand still. We’ll see the expiry of some profitable patents in the coming years, including a handful of blockbusters.
And even an impressive pipeline like AstraZeneca’s is no guarantee that lost blockbuster profits will be replaced. It’s a problem that faces all pharmaceutical companies.
Whether the stock’s high valuation is fair is a tricky question. We’re looking at a forward price-to-earnings (P/E) ratio of close to 24 for the current year. And this is a company with only modest dividend yields — there’s 1.7% forecast for this year.
So what’s the verdict?
The weak reaction to this latest quarter doesn’t surprise me that much, as a company can need to smash expectations to impress growth investors at these levels. And this was largely as expected.
But I think AstraZeneca deserves its premium rating, and I reckon long-term ISA investors should consider it.
