Under Pascal Soriot, the AstraZeneca (LSE: AZN) share price has seen tremendous growth. In fact, in 2012 the share price was 3,000p, yet it saw highs of 9,600p in July this year. As such, the pharmaceutical company has, for a certain period of time, seen its market capitalisation overtake both Royal Dutch Shell and Unilever to top the FTSE 100.
But the past few months have been less favourable for the company. In fact, after news of its deal to buy Alexion for £29bn, its share price has fallen to 7,550p. This fall may be unjustified, however. Soriot believes the acquisition will aid the company in its growth over the next few years and allow it to regain its spot at the top of the FTSE 100. As such, as we head into 2021, are AstraZeneca shares the perfect buy? Yes and no!
The deal to buy Alexion
Despite the success of Soriot’s tenure, he’s not immune to criticism and came in for a lot of it over the decision to buy Alexion. Much of this revolved around overpayment. The offer price of $175 a share was at a 45% premium to Alexion’s closing price on the day. The firm is therefore now making its largest-ever acquisition and is required to secure a $17.5bn loan to help with payment. This will add to its already large debt pile — so no surprise that the AstraZeneca share price saw a 6% fall on the day the deal was announced.
There’s also a question of necessity. AstraZeneca already has a powerful portfolio and pipeline of different drugs and revenues were expected to grow as much as 33% by 2024. There are worries that this acquisition may disrupt its growth and is an unnecessary distraction (and expense).
But there are always two sides to the story. You see, there are also hopes that the deal could drive large gains in the AstraZeneca share price. Why? It will help AZN “enhance [its] presence in immunology”, while also strengthening cash generation. There are even reports the company could increase its dividend as a result. With a price-to-earnings ratio of under 10, Alexion was also fairly cheap in comparison to other pharma companies. As such, the acquisition could end up being a very shrewd move indeed.
Will the AstraZeneca share price be the largest riser?
Alongside this acquisition, there’s also plenty more news affecting the share price. For example, recent reports indicate the Oxford/AstraZeneca vaccine is to be approved in the UK within days. Although Soriot has agreed to supply the vaccine at cost price during the pandemic, meaning that the company will get no initial profits, this is still good news for its reputation and potential future profits.
Recently, AstraZeneca also released news that cancer drug Lynparza received approval from Japan’s regulator. This should also help boost profits.
As such, I believe that the AstraZeneca share price will rise in 2021 due to its enviable selection of various drugs and more-than-competent leadership. Although I’m not convinced by the deal to buy Alexion, AZN’s subsequent share price drop offers an opportunity to buy at a more reasonable price.
But to answer the question in the title of this piece, I don’t think it will be the largest riser in the FTSE 100 next year. For bigger gains, I’d consider either oil or bank stocks instead.
Stuart Blair owns shares in Royal Dutch Shell. The Motley Fool UK has recommended Unilever. 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.