Why AstraZeneca plc Should Beat The FTSE 100 This Year

astrazeneca2Although the recovering FTSE 100 had a strong run in 2013 and turned in a gain of 14%, AstraZeneca (LSE: AZN) (NYSE: AZN.US) easily beat it with a 23% rise to end the year at close to £37 per share.

So far in 2014, AstraZeneca shares are up another 27% against a flat FTSE — and with the bulk of 2013’s rise coming towards the end of the year, we’re looking a 12-month gain of 40% to today’s £45.40 per share!

This impressive performance does come after a bit of a slump, mind, as AstraZeneca’s shares had slipped in response to the “patent cliff” which saw the expiry of key drugs affecting the whole sector.


But the arrival of new boss Pascal Soriot in October 2012 saw the start of an impressive recovery, and the firm’s refocus on its core strengths and investment in its drug pipeline are bringing about a quicker return to health than anyone really expected.

By the end of 2013, the dividend had seen no rise for two years, but it did still yield a respectable 4.8%. And the shares ended the year back up to a P/E of 11.5 — albeit mainly due to the 25% fall in earnings per share (EPS) that year, which had been expected. The rate of EPS fall is forecast to slow dramatically, with a 14% drop predicted this year followed by 7% next, and a good few people are optimistic enough to be hoping for a return to growth in 2016.

Dividends are expected to be held flat for another couple of years. But even after such a terrific share price performance, shareholders should still be enjoying yields of 3.7% on today’s price, which is comfortably ahead of the FTSE average of around 3%.

The reason

Although AstraZeneca’s shares were motoring along nicely in the first few months of this year and were well ahead of the FTSE, the thing that made the big difference, of course, was Pfizer‘s bid approach back in April, which pushed the price up close to £50.

The bid was withdrawn at the end of May with Pfizer unwilling to go any higher than £55 per share, and the price fell back. But there’s still a bid premium there. Barring one or two unlikely exceptions, Pfizer is allowed by UK takeover rules to make a new approach no sooner than 26 November, and hopes of exactly that have already been pushing the AstraZeneca price up again.

End-of-year drop?

Should no fresh bid emerge before the January sales start, I expect the price will drop again, But the chances of falling back far enough to lag the FTSE seem remote — especially as AstraZeneca now has what Mr Soriot calls “one of the most exciting pipelines in the industry“.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.