The Contrary Investment Case: 3 Reasons To Stock Up On AstraZeneca plc


In recent days I have looked at why I believe AstraZeneca (LSE: AZN) (NYSE: AZN.US) could be a dangerous stock selection.

But, of course, the world of investing is never a black and white business — it takes a variety of views to make a market, and the actual stock price is the only indisputable factor. With this in mind I’m going to lay out the key factors which could, in fact, push demand for AstraZeneca through the roof.

Restructuring improves long-term earnings picture

AstraZeneca’s revenues have been hammered in recent years as the effect of patent expirations across key products has seen the competition chip away at earnings. And the company has warned that further sales weakness is expected to crimp earnings again this year, because AstraZeneca’s timeline in combating the loss of exclusivity by developing new drugs has lagged significantly behind that of its rivals.

Still, for long-term investors the company’s ongoing R&D transformation package creates a much more promising outlook for its beleaguered pipeline. Not only is the firm investing heavily in creating a network of laboratories across the US, UK and Sweden in red-hot  bioscience regions, but it’s also busy on the M&A trail, aiming to boost its development capabilities.  

Emerging markets streaking away

A positive point in AstraZeneca’s woeful revenues performance over the past year, however, has been the progress it’s making in critical emerging markets, another crucial factor for growth in coming years. Group revenues from developing regions increased 6% last year, the company noted, driven by sales advances in China and South Korea, which leapt 21% and 17% respectively.

And AstraZeneca is ramping up its exposure to developing regions through acquisition activity — the firm’s purchase of Bristol-Myers Squibb‘s holding in their joint diabetes venture last month gives the company improved reach in these high growth regions, for example.

Still a meaty dividend selection

AstraZeneca elected to keep the dividend on hold for the second consecutive year, at 280 cents per share, as earnings weakness worsened. However, City analysts expect the company to get its progressive payout policy back on track from this year, as its product pipeline steadily improves earnings, at least during the medium term.

The pharma giant is anticipated to lift the full-year dividend 1.8% this year to 285.1 cents, with an additional 0.6% advance pencilled in for this year to 286.7 cents. These rises represent a shadow of the annual hikes seen in previous years, although such projections still create a yield of 4.2%, far ahead of the 3.2% FTSE 100 forward average.

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Royston does not own shares in AstraZeneca.