At the beginning of this week, I doubled my AstraZeneca (LSE: AZN) holding, taking advantage of the fact that the company’s shares currently trade less than 10% above their 52-week low.
I decided to double-down because I’m becoming increasingly excited about Astra’s outlook. That said, as a value investor I’m not wholly focused on Astra’s outlook, I also believe that the company looks attractive based on its current valuation and trading figures.
Indeed, at present Astra is one of the cheapest companies in the global big pharma sector. The company’s shares trade at a forward P/E of 15.9 compared to the pharma sector average of more than 20. True, Astra’s earnings per share are forecast to fall 1% this year and a further 4% during 2016, but even after factoring in these declines, the company is still trading at a relatively low 2016 P/E of 16.3.
What’s more, Astra’s shares support a dividend yield of 4.2%, which is around 0.7% more than the FTSE 100’s average dividend yield.
So, based on current figures, Astra is undervalued and supports an attractive dividend yield. However, what’s really exciting is the company’s outlook and the blue sky potential.
Blue sky potential
Astra has one of the most exciting treatment pipelines in the pharmaceutical business. The company has Astra has 119 projects in its clinical development pipeline and a total of 222 new products under development. Astra is planning to conduct 50 treatment trials this year, with several product launches planned between now and 2017. According to City analysts, three of these treatments have the potential to be blockbusters, which can return the company to growth by 2017; as targeted by management.
And as I’ve covered before, the most exciting treatments in Astra’s pipeline are the group’s ‘immuno oncology’ cancer treatments currently under development. Astra is expected to generate $6.9bn of oncology franchise sales by 2023, up from a low of $2.8bn reported this year. Profit margins are expected to expand significantly over this period.
Still, the development of new drugs is a risky process, and there’s no guarantee that any of Astra’s new products will make it to market.
Alongside the development of new oncology treatments, Astra has a number of other growth initiatives that it is chasing. These include boosting sales of the company’s Brilinta blood thinner, diabetes, and respiratory treatments as well as growing its presence within the Japanese market. Sales across these four growth platforms expanded by 13% during the first quarter of this year.
Astra’s management is chasing growth, and the company is not pinning all of its hopes on one or two key products, which should increase the chances of long-term success.
The bottom line
All in all, Astra is undervalued and supports an attractive dividend yield. Moreover, the company is chasing growth and over the long-term, the company could generate significant returns for investors.
But don’t just take my word for it. I strongly recommend that you do your own research before making a trading decision — you may come to a different conclusion.
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Rupert Hargreaves owns shares of AstraZeneca. 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.