The FTSE 100 crash has included some spectacular falls across the board. Some banking shares have lost around 40% of their value in just a couple of months. Some safer stocks, like supermarkets, have held on to small falls. But AstraZeneca (LSE: AZN) has held up. In fact, its share price has been bucking the trend, up 9% since the Covid-19 collapse started.
It’s perhaps not surprising if pharmaceuticals firms do well during the race to find a vaccine. And that’s surely partly behind the AstraZeneca price rise.
The virus race has helped push up some smaller pharmaceuticals shares way higher than that. Anyone who has owned shares in Novacyt since the start of the year now sits on a 30-bagger. That’s the kind of rare reward you can enjoy if you happen to hold shares in small-cap companies at a fortunate time. But I can’t see the AstraZeneca share price doing that.
A surge like Novacyt’s can also lead to pain if those watching the soaring price jump on the bandwagon too late. I think those considering buying shares in the coronavirus test-maker now, after the price has rocketed, should be cautious.
AstraZeneca share price
I also wouldn’t use coronavirus hopes as a reason to jump on the AstraZeneca share price either. A number of firms engaged in research will presumably share in any potential benefits from coronavirus treatments. And the benefits will very likely be relatively short term too. At least, I hope they will. I’d rather take a vaccine that sees it off for good than ongoing profits from longer-term treatments.
No, I think of the AstraZeneca share price as a way into the firm’s drugs development pipeline. It’s been years since the company, along with GlaxoSmithKline, suffered from the loss of key patents. New boss Pascal Soriot saw the way forward in drug development, and other pursuits were sidelined with that in mind.
And that’s what I’m focused on, long-term drug development. That’s surely what’s going to keep the cash rolling in over the coming decades, and the dividends rolling out again and into shareholders’ pockets.
Wednesday’s first-quarter update had CEO Soriot speaking of “another quarter of strong growth across every therapy area and region.” The period’s highlights included key progress for oncology drugs Tagrisso and Koselugo, as well as diabetes medication Farxiga. And I think those are likely to provide better longer-term boosts to the AstraZeneca share price than virus treatments.
As far as the company’s Covid-19 work goes, it’s donated nine million face masks to healthcare workers so far, and is researching the virus itself. In Soriot’s words: “We hope our efforts to protect organs from damage, mitigate the cytokine storm and the associated hyperinflammatory state, and target the virus prove to be successful.” I couldn’t have put it better myself.
On the financial front, revenue is up 16%, with EPS up 27% (17% and 33% respectively at constant currency). Analysts are forecasting the start of a strong earnings growth spell this year, and I think Wednesday’s news is cause for optimism. The AstraZeneca share price indicates a forward P/E multiple of 25 this year, dropping to 20 next.
I think that’s an attractive price for an excellent company.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.