Pharmaceutical giant AstraZeneca (LSE: AZN) has been turning itself around after hitting the doldrums — along with other big pharma companies — because of patent-expiry issues.
Indeed, looking back, it would have been good to have bought some of the firm’s then-unpopular shares around 2008 when the price was below 1,850p. Today, the shares are changing hands close to 7,108p. And they’re looking perky on this morning’s release of the third-quarter and year-to-date results report, which looks pretty decent to me.
A full valuation
But let’s not get carried away. At today’s level, the valuation is starting to look quite rich, which is often a consequence of improving earnings and growth. A big firm such as AstraZeneca can’t launch into a new growth phase without the investor community noticing!
The forward-looking earnings multiple for 2020 runs at almost 22 and the anticipated dividend yield is a smidgeon over 3%. It seems that part of ascent in the share price over the past decade or so has been down to a valuation up-rating. But maybe the company is worth its higher valuation, and I certainly wouldn’t let it put me off investing with an investment horizon of, say, 20 years in mind.
Today’s figures are good and continue a run of positive news in the numbers over the past couple of years. In terms of constant currency rates, product sales increased 18% in Q3, and 17% so far this year. New medicines emerging from the Research & Development (R&D) pipeline have been driving some of that outcome. Sales of new medicines increased by 64% in the quarter and increased their penetration into emerging markets by 90%.
The adjusted figures for earnings per share show an increase of 36% in Q3 and 38% year to date. So, overall, the company appears to be making sound progress. And looking ahead, AstraZeneca said it expects “strong and sustainable” growth in product sales and an “improvement” in profitability and cash generation over the long term.
In today’s announcement, the firm upgraded its guidance on product sales, which it now expects to increase by a “low to mid-teens percentage.” Chief executive Pascal Soriot said in the report the sales guidance has been upgraded for the second quarter in a row because AstraZeneca is “growing at pace.”
The strong performance from new medicines and “impressive” results from the firm’s key markets, such as China, the US and Japan, gives him confidence the firm will deliver “sustainable earnings growth.”
Meanwhile, I reckon the dividend yield on offer here is attractive when balanced with the prospects for ongoing growth in earnings in the years to come. I like the defensive and cash-generating nature of the sector and believe AstraZeneca is performing well within it.
This is just the kind of stock I’d buy for the long term and would look to pick up a few shares on dips and down-days now.
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Kevin Godbold has no position in any 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.