It’s looking like a close call, with AstraZeneca (LSE: AZN) (NYSE: AZN.US) shares up just 13.4% since the start of the year to 3,300p, against the FTSE 100’s gain of 13.5%.
But when we add dividends — AstraZeneca looks set to provide a full-year yield of 5.4% against the FTSE average of 3.1% — the pharmaceuticals giant edges ahead.
Optimism
It’s still far too close to call with any comfort, but I see reasons to be more positive about the drugs firm than the market as a whole, and I think sentiment is starting to sway back in its favour.
We know that AstraZeneca is on a turnaround course right now, and that there’s a fall in earnings per share of more than 20% forecast for the year to December 2013. But the mooted 176p-per-share dividend should still be covered about 1.7 times by earnings, and that looks like a big enough cushion to me.
Valuation
And even with that in mind, the shares’ forward P/E of 10.7 just looks too low to me — the FTSE is averaging a P/E of 14, but I think prospects for AstraZeneca over the next five years have got to be stronger than average.
At third-quarter time, revenue was down as expected due to the expiry of patent protection on a number of key drugs, but the company’s pipeline is starting to look good again after a few years with less coming through that might have been hoped.
Pipeline
After reporting a healthy-looking pipeline as of 30 June, at Q3 time the firm pointed to three new Phase III clinical trials that have recently started — for olaparib, an ovarian cancer treatment; selumetinib, aimed at lung cancer; and asthma treatment benralizumab (with all three at least passing the silly-sounding-names test with flying colours).
Chief executive Pascal Soriot added:
“We continue to focus on the strategic priorities of returning to growth and achieving scientific leadership, and this is reflected in continued investment in our growth platforms and our pipeline. I am pleased with the progress we are making, particularly on the pipeline, with three regulatory filings, three Phase III starts and four business development transactions since our last update“.
Acquisition
AstraZeneca is also doing what the big pharmaceuticals firms do best — using its financial muscle to snap up promising-looking prospects.
The firm’s biologics research and development arm, MedImmune, has in recent months made a couple of exciting-looking acquisitions — Spirogen, a private biotech company working in a cancer-related antibody-drug conjugate field; and Amplimmune, another private firm researching immunology-based cancer treatments.
All in all, I see this adding up to a positive picture, and I’d expect the markets to come to the same conclusion in the coming months.
Tentatively, then, I’m labeling AstraZeneca as a 2013 winner.
