AstraZeneca plc: Is It Still A Buy Now That Pfizer Has Gone?

AstraZenecaAfter all the excitement surrounding the Pfizer takeover bid, here comes the hangover for investors in AstraZeneca (LSE: AZN) (NYSE: AZN.US). The UK’s second-largest pharmaceutical company’s share price fell 12% after management snubbed Pfizer’s final offer, disappointing traders who bought the stock hoping to make a fast buck.

We’re not traders at the Motley Fool, we’re investors. We like to buy companies at tempting valuations then hold them for the long -term, reinvesting our dividends while we wait for the share price to deliver some capital growth as well. In that respect, we feel more comfortable buying AstraZeneca now that takeover talk is subsiding.

Soriot, So Good

And there are good long-term reasons to buy this stock, not least the performance of chief executive Pascal Soriot. He laid down a marker early in his tenure, by scrapping the company’s share buyback scheme. That was a disappointment for investors, but the right move for the company, as part of his strategy to cut costs, target key markets, replenish the company’s dwindling drugs pipeline and avoid the looming patent cliff.

Soriot has taken arms against a sea of troubles, including government cutbacks in Europe, healthcare reform in the US, sluggish emerging market sales, and a slew of broker downgrades. He must feel vindicated today, with significant figures such as fund management legend Neil Woodford and Vince Cable rushing to proclaim AstraZeneca’s strategic importance to the UK, and top 20 shareholders such as Fidelity and Threadneedle manning the barricades against the US invader.

Jam Sandwich

Now we’ll find out whether they were right. The signs look promising, as Threadneedle said, this “is a strong, standalone UK business with a good product pipeline”, that has made notable progress under Soriot. But shareholders are clearly being told to forego jam today, and a big gooey £55-a-share dollop of it at that, in the hope of jam tomorrow and tomorrow and tomorrow. As with any stock, buying AstraZeneca today is an act of faith.

Setting a value on its pipeline of drugs needs more than faith, it requires almost mystical powers. All we can say is that AstraZeneca boasts 19 products entering late stage trials between now and the end of next year, so even with a moderate strike rate, investors have reason to be hopeful. Yesterday, broker UBS raised its target price from 4825p to 5000p, maintaining its buy recommendation. Today, you pay 4326p, some 16% below that. While you wait, you can bank your dividends, which currently offer a yield of 4.2%.

The Pfizer bid isn’t completely dead. It has until Monday to re-open talks. So traders could still get their rewards, but I remain hopeful that investors will be the real winners in the end.

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Harvey doesn't own shares in any company mentioned in this article.