Investors have seen a significant increase in AstraZeneca (Lse: azn) shares over the past year, with a rise of up to 15.6%. Imagine investing £10,000 in AstraZeneca shares and seeing it grow to approximately £11,560 in just one year, on top of receiving around £240 in dividends. It’s undoubtedly a promising return for those who took a chance on the pharmaceutical giant.
Unpacking the Surge:
- Financial Performance: AstraZeneca’s remarkable share price surge is attributed to its commendable financial performance in 2024. With a 21% growth in total revenue and a 19% increase in core earnings per share (EPS), the company has been making significant strides. Notably, the oncology segment emerged as a frontrunner with a 24% revenue surge, while areas like cardiovascular and respiratory therapies also played their part in the growth story.
- Challenges Along the Way: Despite the upward trajectory, AstraZeneca faced its fair share of setbacks, especially in late 2024. Difficulties in China, including the arrest of the country president and executives, as well as a probe into alleged illegal data collection, caused disruptions in the region. Consequently, sales took a hit, leading to a temporary decline in the share price.
The Lens of Undervaluation:
- Analysts’ Perspective: Despite the setbacks in China affecting its reputation, many analysts believe AstraZeneca is undervalued. Institutions like Morgan Stanley have initiated coverage with an Overweight rating, highlighting the stock as a compelling investment opportunity due to its robust pipeline and exposure to high-value markets like oncology and cardiovascular/renal treatments.
- Valuation Metrics: From a valuation standpoint, AstraZeneca may seem more expensive compared to some of its peers in the pharma sector based on traditional metrics. However, adjusting for growth projections, AstraZeneca’s price-to-earnings-to-growth (PEG) ratio of 1.3 paints a more favorable picture, showcasing a 23% discount to the sector average.
Looking Ahead:
AstraZeneca’s ambitious revenue target hinges on the introduction of 20 new medicines and a commitment to disruptive innovation and sustainable practices. While the pharmaceutical industry comes with inherent uncertainties, the company’s robust pipeline and strategic focus on oncology and cutting-edge innovations position it well for long-term success. Despite the inevitable ups and downs, sticking with AstraZeneca for the long haul seems like a promising bet. Personally, considering adding more to my position in AstraZeneca and holding onto it for the long term seems like a prudent move, especially given its focus on oncology and innovative investments.
