Since Pascal Soriot took the helm at AstraZeneca (LSE: AZN) (NYSE: AZN.US) in October 2012, investor confidence has been returning strongly. The share price is up 23% over the past 12 months, to 4,175p, and over three years it has picked up 35% against the FTSE’s 10% — and that’s impressive for a company that has seen earnings falling for two years in a row.
Earnings falling
In fact, earnings per share (EPS) slumped by 26% in 2013, in part due to the expiry of patents on some key drugs and increasing competition from generic alternatives.
With the shares on the rise again, you might think there’s a return to growth forecast. Well, no, there isn’t. The current consensus still suggests a further 14% fall in earnings for 2014, with a 2% slip to follow in 2015 — and that puts the shares on a forward P/E for 2015 of 16, which some will see as a bit high.
And we must remember that forecasts for rival GlaxoSmithKline, which faces the same industry problems, are looking a good bit better.
Past the bottom?
The trend of forecasts for AstraZeneca has been slipping, too. The same analysts who are now predicting 2014 EPS of 258p were touting 335p just a year ago, but at least it has firmed up a little in the past month, from a low of 255p.
Forecasts for 2015 have also started to reverse their downward movement, as updates from the company have started sounding a bit more bullish — as recently as last week, speaking of first-quarter results, Mr Soriot said “We are investing in our rapidly progressing pipeline and the key platforms that are the backbone of our strategy to return to growth“.
Against that optimism, however, there’s still a wide spread of opinions between individual analysts’ forecasts — though we’re awaiting adjustments after that first-quarter update.
On the actual recommendation front, out of a sample of 32 commentators, five have posted Buy recommendations with 11 suggesting Sell. That puts a fairly large proportion of them in the remaining 15 who are sitting on the Hold fence — presumably waiting for concrete news before endorsing (or refuting) the company’s upbeat outlook.
Wait and see
What do I think? Well, GlaxoSmithKline looks the better investment to me right now, with better earnings and dividend forecasts, a lower P/E valuation, and that positive-looking Novartis deal in the bag.
On the whole, then, I’m with the “wait and see” crowd, and I think the short-term optimism might be overdone.
