Slide in earnings slowing
AstraZeneca’s focus on controlling costs is combining with progress developing new drugs to arrest the firm’s slide in profits. City analysts following the firm expect earnings to drop 2% this year and 4% next year. That’s good progress compared to the double-digit falls we’ve seen recently.
Since Pfizer’s takeover approach, there seems to be a premium built in to the share price, perhaps due to hopes of another offer appearing. However, the share price eased back around 13% in the months since the spring. Today’s 4112p has the firm trading on a forward price-to-earnings ratio (PER) of just below 16 for 2016, and the forward dividend yield is 4.4%. Forward earnings will likely cover that payout around 1.5 times.
That’s not an obvious bargain. However, if the development pipeline delivers rising profits going forward, such growth could drive the share price higher. The timescale likely for such an outcome is unclear. Meanwhile, AstraZeneca retains its ‘defensive’ characteristics, which combines with that growth potential. I’m happy to watch from the sidelines.
A focus on addictions
Profits are falling at Indivior due to generic competition. City analysts following the firm expect earnings to plunge 48% this year and 27% next year. The company focuses on producing treatments for addictions, which are still generating enough earnings to cover the dividend payout around twice. At today’s 217p share price, the forward dividend yield runs at 3.3% for 2016 and Indivior is priced at around 15 times forward earnings.
Reckitt Benckiser (LSE: RB) spun out Indivior at the end of 2014, and the shares are up around 60% since the start of this year. Despite slipping earnings, the firm’s chief executive reckons Indivior’s development pipeline will deliver good growth in the future. Indivior’s current revenues depend on one major product line, a treatment for opioid dependence branded Suboxone and Subutex in its various forms. It’s essential that the up-and-coming pipeline captures the market; otherwise, things could turn sour for the company and its investors.
Indivior is worth watching but carries too much uncertainty to interest me just now.
Growth on track
Skyepharma’s focus on developing oral and inhalation pharmaceutical products produced some stunning growth numbers in recent years. After rising 944% last year, City analysts following the firm expect earnings to ease off by 19% this year followed by another 43% up-spurt next year.
At a share price of 338p, the forward PER sits at almost 16 for 2016 and the firm doesn’t pay a dividend. The shares rose more than 600% since the end of 2013 and Skypharma remains in full-on growth mode, although shareholder gains will likely be slower going forward.
Skypharma strikes me as well worth watching with the aim of investing if further general market weakness knocks the shares back a bit.
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Kevin Godbold 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.