Why I’m Buying AstraZeneca plc At Current Prices

Here’s why I’m buying AstraZeneca plc (LON: AZN).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Throughout 2014, I wasn’t a fan of AstraZeneca (LSE: AZN). However, last week I started to build a position in the company.

You see, over the past few months my opinion of Astra has changed.

True, the company is still suffering from the loss of exclusive manufacturing rights on some its key treatments, but the group’s outlook is improving.

Falling sales

Falling sales of Astra’s blockbuster Crestor and Nexium drugs, which together accounted for a third of overall sales during 2014, are holding the company back. 

In March, management warned that due to falling sales of these key treatments, revenue for full-year 2015 is expected to decline by mid-single digit percentage. 

Still, Astra’s growth initiatives are coming on in leaps and bounds.

Specifically, during the first quarter of this year, Astra’s five growth platforms –Brilinta, Diabetes, Respiratory Emerging Markets and Japan — reported sales growth of 13%.

Further, the company’s productivity agenda has started to yield results. While sales are set to fall during 2015, due to cost savings, core earnings per share are expected to increase by low single-digit percentage. 

Bright outlook

It’s nice to see that Astra’s efforts to stem falling sales are taking hold, but that’s not why I’m interested in the company.

I’m really interested in Astra’s future growth potential. 

The company has 119 projects in its clinical development pipeline. During 2015-2016 alone, around a third of these will progress to the next stage of development. What’s more, Astra is currently conducting 72 trials for its oncology treatments under development. Some of these trails have already yielded substantial results. 

Unfortunately, if history is anything to go by, only a small number of the treatments Astra is currently developing will make it to market. Figures show that on average, less than 10% of drugs make it from inception to sale. 

Nevertheless, with 119 treatments under development, Astra stands to bring 12 new products to market over the next few years. 

Lofty targets

12 new products may not seem like much, but many of these drugs will be high-margin oncology treatments. 

And the key test will come over the next two years when Astra’s sales are set to being expanding again.

Astra’s long-term plan is to achieve sales of £45bn by 2023, which seems wishful thinking, although, with so many products under development, the company stands a good chance of hitting this target. 

Attractive valuation 

As I’ve mentioned before, if Astra manages to meet this lofty target, based on my figures and historic profit margins, the company could report a net profit around £5.6bn or 443p per share by 2023.

At present, Astra currently trades at a forward P/E of 15.6. 

15.6 times 2023’s projected earnings per share of 443p gives a target price of £69.11 by 2023. That’s an annual return of around 6.9%. Assuming Astra’s dividend yield remains at 4.2% and dividends are reinvested, in the best-case, investors could see a total return of 136% by 2023. 

Now, clearly this is an optimistic forecast but it really shows the growth potential Astra has ahead of it.

That’s why I’m a buyer.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Small-Cap Shares

This 13p penny stock’s on fire! Should I buy it?

This UK penny stock has been making investors a lot of money in recent months. Is it worth buying today…

Read more »

Investing Articles

Am I missing out by not buying FTSE bank gem Standard Chartered?

Despite its recent price rise, FTSE 100 bank Standard Chartered still looks very undervalued against its peers and appears set…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

£10k to invest in an ISA? Here’s how I’d use it to aim for a £97k annual passive income

Harvey Jones reckons he can build a high and rising passive income by investing in a spread of high-yielding FTSE…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

Dividend giant Legal & General’s share price still looks cheap, so should I buy more?

Legal & General’s share price still looks undervalued to me, with the company set for strong growth and continuing to…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

Up 32% this month! Is it finally time to buy this falling FTSE 250 stock?

After years of consistent losses that have slashed the share price in half, this troubled FTSE 250 stock’s making sudden…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Growth Shares

Could the Rolls-Royce share price be above 500p by the year end?

Jon Smith questions whether the Rolls-Royce share price could push higher if upcoming results look good, but balances it out…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

One dirt cheap income stock I’d buy in an ISA today and it’s not Imperial Brands or Vodafone

Harvey Jones is on the hunt for a top FTSE 100 income stock at a low price. He's ruled out…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

£20,000 in savings? Here’s how I’d try to turn it into a £2,987 monthly passive income

Investing in FTSE 100 and FTSE 250 shares can unlock a life-changing passive income over time, as Royston Wild explains.

Read more »