Will AstraZeneca plc Return To Growth As Soon As Next Year?

The turnaround at AstraZeneca (LSE: AZN) (NYSE: AZN.US) is going well, but the big question is when will the drugs giant return to earnings growth?

Before third-quarter figures were released yesterday, we had falls in earnings per share (EPS) of 13% and 7% forecast for this year and next, and many were hoping we’d see a return to growth by 2016 or 2017.

But with full-year guidance having been raised, is there any chance we’ll see it sooner than expected?

Guidance uprated

Q3 was the third quarter in a row to produce growing revenue, up 5%, with nine-month revenue up 4% — helped by generic competition to AstraZeneca’s Nexium heartburn treatment not being as tough as expected.

And while core EPS was down 8% in the quarter (at constant exchange rates), over the full period the drop was a mere 3% which was ahead of previous guidance.

AstraZenenca now says it expects core EPS to drop 10% for the full year at constant exchange rates, but some of that is due to the firm “accelerating its investments in its growth platforms and expanding pipeline” to make the most of the growing revenue trend. At today’s exchange rates, the core EPS fall will likely end up around 15%.

But that extra investment should bring a return to earnings growth closer, and core EPS for 2015 is now being targeted to be “no less than the lower end of the range of the upgraded guidance for Core EPS for 2014 at actual exchange rates” — that is, hopefully at least as good as this year, and it might even be higher.

The effect that would have on total EPS is anybody’s guess right now, but AstraZeneca says it will provide full guidance for 2015 when 2014 results are released on 5 February.

Acquisition back on track

AstraZeneca has finally got its acquisition strategy in order too, and that’s boosting its pipeline development and will also aid its return to growth. Prior to the arrival of Pascal Soriot, rival GlaxoSmithKline was way ahead in those stakes and AstraZeneca’s acquisition trail looked inept by comparison.

Whenever EPS growth does return at AstraZeneca, all the evidence points to a very impressive turnaround, and a good bit sooner than many had expected.

Worth buying now?

AstraZeneca shares were boosted by the bid attempt from Pfizer, and there’s still some of that factored into the 4,593p share price. We’re looking at a P/E of 18 on 2015 forecasts, with a dividend yield of 3.8% expected, and that’s a higher valuation than Glaxo’s. But that ratio should drop quite sharpish when earnings growth returns.

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