The share price of pharmaceutical major AstraZeneca (NASDAQ:AZN) was going through tough times until recently. In 2023 it lost 10% of its value in just over a month. Although this was not surprising. There was a rotation to beaten stocks and AZN is anything but beaten. In the last one year, it is still up 17.5% and in the last five years, it has more than doubled investors’ money.
But recently it has proved itself once again. Its share price took a discrete jump when it released its 2022 fourth quarter and 2022 full year results and has gained 7.1% since then. In other words, it has almost recovered the loss of value seen till the beginning of February. Clearly, the cancer specialist has shown once again that this is a sound investment.
But let’s not jump the gun. Here, I take a closer look at the company’s financials to assess whether everything is indeed going well for the company. This article also looks at its dividend yield and, importantly, its market multiple to see how much upside there is for the stock.
double digit growth in 2022
The company really needs no introduction. It became a household name when it developed one of the first COVID-19 vaccines in 2020 in collaboration with the University of Oxford. But AstraZeneca’s strength has always been in its cancer treatments. And they continue to drive its progress.
For FY22, the company sees 19% year-on-year (YoY) revenue growth at market exchange rates and as high as 25% at constant exchange rates. Oncology and biopharmaceuticals, its two largest segments with a share of 33% and 21% respectively in total revenue, each showed strong growth of 13%.
While this is the highest growth seen across all segments, at first glance, it is curious as it is clearly low compared to the overall growth. However, it turns out that there is a technical reason for this. As it happens, the rare diseases segment saw just 4% growth after its tumor treatment Koselugo revenue was added to its 2021 revenue for comparison. In fact, rare disease revenue grew 129%, which is reflected in overall revenue growth.
AstraZeneca’s fourth quarter (Q4 2022) revenue declined by 7%, but that too is not a cause for alarm, as it is due to declining sales of its COVID-19 vaccine. Whatever it is, it is good news, because it shows that we will now put the pandemic behind us. The company’s Q4 revenue growth for Ex-VaxZeveria, as it’s now called, averaged a healthy 17%.
Following its strong revenue growth in 2022, its operating profit has seen a massive increase of over 3X in both real exchange rates and constant currency. its earnings per share [EPS] Strong growth has also been shown in 2022 with core EPS rising 26% to $6.66. This is more than 3 times reported EPS, as costs related to the inclusion of rare diseases Alexion, which AstraZeneca acquired as an amortization in 2021, impairment and restructuring charges. It has nothing on its balance sheet or cash flow statement.
Tempered progress expected in 2023
The company’s guidance is also positive, as it reflects continued expectations for growth. Although it expects revenue growth to slow to a “low- to mid-single-digit percentage” for 2022, compared to last year’s guidance of a “high teen percentage.” Interestingly, at least part of this is driven by the company’s exchange rate expectations. In their statement, the company’s CEO, Pascal Soriot, says that they expect “double-digit revenue growth at CER”. The Company reports its figures in US dollars, for which exchange rates so far in 2023 indicate an adverse effect in results at market exchange rates in 2023. Also, a continued decline in COVID-19 treatment sales will have a negative impact.
Similarly, it expects core EPS growth to slow to a “high single-digit to low double-digit percentage” compared to last year’s guidance of “mid-to-high twenties percent.”
More Upside for AZN
Although analysts are more optimistic for AstraZeneca’s 2023 EPS than the company itself, the consensus estimate is $4.59, which is more than double the number seen this year. With this figure, its forward price-to-earnings (P/E) ratio is 14.7x. It’s not high by any means. Over the past decade, the company’s median P/E has been 39x.
It is believed to refer to the twelve months after [TTM] P/E, but it provides some comparison. Also, according to my calculations, its P/E after 2022 earnings release is 32.5x, which is also below its average P/E. To trade at its historical average, the stock still needs to rise about 21%, which shows what kind of upside it has.
It also pays dividends, which should be considered. Don’t let its current dividend yield of 2.1% fool you, the company’s share price has been rising over time. For anyone who bought the stock five years ago, the current yield would be more than 8%. There’s also something to be said for its dividend history. Wait 23 years for the last time it paid dividends in a row.
Frankly, I can’t find anything not to like about AstraZeneca. And I haven’t even touched on its pipeline of ongoing treatments, which includes a slew of approvals for its upcoming cancer treatments and treatments for asthma and other respiratory infections as well as heart failure.
Its share price could see short-term weakness if investor interest remains strongly focused on consumer stocks, as has been the case recently. But that hardly takes away from AZN’s long-term potential. It’s proven its mettle as a stock over time, and its dividends are well worth considering. I will buy it.
Editor’s Note: This article discusses one or more securities that do not trade on a major US exchange. Please be aware of the risks associated with these shares.