Why Eco Animal Health Group Plc is set to outperform AstraZeneca plc in 2017

Today’s results from Eco Animal Health (LSE: EAH) show that the healthcare company is making excellent progress. They also indicate that it has the potential to continue to make share price gains following its 69% rise of the last year. This is well ahead of sector peer AstraZeneca (LSE: AZN) with a 3% fall during the same timeframe. Looking ahead to 2017, this outperformance could continue.

Strong growth

Eco Animal Health’s first half report shows that its current strategy is working well. Revenue has increased by 25%, while pre-tax profit is up 97% versus the same period of the previous year.

There was strong performance in the US and China, with demand for Aivlosin still strong. This caused a rise in its sales of 15%, while EU Aivlosin approval allowed the submission of regulatory filings for key global egg producing markets. And with heavy invest investment in R&D, Eco Animal Health is well positioned to deliver further growth over the medium term.

Encouragingly, cash generation continues to be strong, with the company now having a net cash position of £18.5m. This provides it with the financial flexibility to not only survive during potentially challenging periods, but to also invest in future growth or even in M&A opportunities.

In fact, in the current year Eco Animal Health is forecast to record a rise in its earnings of 34%, followed by growth of 17% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.9, which indicates that its shares could move higher.

A challenging period

The performance of Eco Animal Health contrasts with that of AstraZeneca. The latter is continuing to endure a difficult period, with a loss of patents on key, blockbuster drugs hurting its financial performance. Although an aggressive acquisition programme has slowed the decline in its bottom line, in the current year AstraZeneca is still expected to report a marginal fall in earnings, followed by a slump of 9% next year.

As such, it’s relatively likely that Eco Animal Health will outperform its larger peer in 2017. It has superior growth prospects and investor sentiment is therefore likely to improve more rapidly than for AstraZeneca.


Despite this, AstraZeneca remains a sound long-term buy. Its acquisition programme should deliver positive bottom line growth over the medium term, while its price-to-earnings (P/E) ratio of 12.5 indicates that it offers excellent value for money. It could therefore begin to be rated upwards by the market as its financial performance begins to improve in future years.

In addition, with it having a yield of 5.2% which is covered 1.5 times by profit, it remains a sound income play. Certainly, it’s superior in a dividend sense to Eco Animal Health, which yields 1.2% from a dividend covered 2.1 times by profit. However, regarding which stock will rise by the greatest amount in 2017, Eco Animal Health seems to be the stronger of the two.

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Peter Stephens owns shares of AstraZeneca and ECO Animal Health Group. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.