AstraZeneca plc Could Be Back To Growth By 2016

When Pascal Soriot took over as the new boss of AstraZeneca (LSE: AZN) (NYSE: AZN.US) in October 2012, his brief was to get the pharmaceuticals giant back to earnings growth as soon as possible.

With patents on a number of key drugs set to expire and the firm’s drugs pipeline looking a little sparse, he had his work cut out for him for sure. But Mr Soriot has surely delighted AstraZeneca shareholders with his whirlwind approach. Lower-margin businesses have been culled, and AstraZeneca has returned to its core strength of developing key new drugs.

FY 2014

Full-year results are due on Thursday 5 February, so what are we likely to see?

At Q3 time the pipeline was looking good, with the company talking of “accelerating its investments in its growth platforms and expanding pipeline“. Guidance for full-year core EPS suggested a drop of 10%, but that was better than previous predictions.

In its outlook for 2015, AstraZeneca also told us it expects core EPS for the year to be “no less than the lower end of the range of the upgraded guidance for Core EPS for 2014 at actual exchange rates“, and that’s possibly the best indication yet that we’re close to a turning point and should soon be seeing a resumption of earnings growth.

Better than expected

AstraZeneca’s recovery so far has been better than anyone really expected back in 2012, and when 2013’s full-year results were released in February 2014 Mr Soriot told us he was “confident that we can return to growth faster than anticipated and expect our 2017 revenues will be broadly in line with 2013“. From that, many observers have been expecting 2017 to be the year that AstraZeneca returns to earnings growth, with cost-cutting and improvements in efficiency turning that revenue growth into a healthier bottom line.

But with every set of results so far, AstraZeneca has done better than expected, and I’m really hoping to see EPS growth a year earlier than that, by 2016. The current consensus suggests EPS falls of 2% in 2015 followed by another 2% in 2016, but forecasts have been gradually creeping upwards in recent months. There’s a 21% fall in reported EPS on the cards for the year just ended, and anything better than that will surely lead to a revision of those forecasts for the next two years.

Worth its premium

AstraZeneca’s forward P/E is a bit higher than average right now, at 18 for 2015 and 18.5 for 2016, but that’s based on an expectation of long-term growth — and there still seems to be a premium left from the aborted Pfizer takeover bid.

But all in all, it’s a very well managed company and it deserves its rating — and we should hear good things next week.

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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.