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Why I’d buy and hold the AstraZeneca share price for the next 20 years

AstraZeneca (LSE: AZN) knows a thing or two about the pharmaceutical business. Indeed, the company is one of the largest drug researchers and manufacturers in the world, with a market capitalisation of £71bn at the time of writing.

I believe this company has considerable investment appeal. A string of new products have hit the market over the past 12 months, and there’s plenty more to come. These launches should push earnings higher at a steady clip, and support dividend growth.

The company is already one of the most attractive dividend stocks in the FTSE 100. I believe its dividend credentials will only improve over the coming years as sales growth filters through to the bottom line.

Investments paying off

It only takes a quick look at City forecasts to see that analysts are expecting Astra’s growth to take off. For 2018, they’ve pencilled in an earnings per share (EPS) increase of 55%. This is followed by a projected expansion of 14% in 2019.

These numbers are impressive, but are they too good to be true?

I reckon the figures might actually be understating Astra’s potential. Over the past five years, the company has pulled itself through a transition period. As revenue has tailed off from blockbuster legacy products, management has prioritised the development of new treatments, particularly in the field of cancer treatment, or oncology. 

The focus on these products means Astra has become somewhat of a global leader in the oncology space, and while it’s still early days for this sector of the healthcare market, the long term revenue opportunity here is bigger than anything that has come before.

New products 

Today, Astra announced that it’s moving along with the development of yet another game-changing treatment, Lynparza. 

Designed to help treat pancreatic cancer, the US Food and Drug Administration has awarded the treatment orphan drug status, a label given to medicines intended to treat disorders affecting fewer than 200,000 people. The designation is designed to streamline the approvals process for such orphan drugs. Lynparza’s effectiveness is currently being tested in a phase III trial, the results of which are expected in the first half of 2019.

Lynparza is just one of several oncology treatments that Astra is working on, some of which analysts believe could generate several billion dollars in sales per annum for the company.

Because Astra has the exclusive manufacturing rights for these treatments when they hit the market, they’ll give the firm a predictable, steady income stream for many years to come.

With this being the case, I don’t view the stock’s current valuation of 21.7 times forward earnings as prohibitive. I’d happily pay this multiple today considering the company’s position at the cutting edge of cancer research and treatment, as well as its long-term growth and income potential.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.