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ASTRAZENECA BUY (AZN) £63.00 Stop loss: £47.00 Market cap: £80bn
AstraZeneca (AZN) is looking more attractive as it enjoys momentum with drug developments and streamlines its business.
Its share price is starting to pick up after being sluggish for a long time. Analysts have also started to upgrade earnings forecasts which is important for sustaining upwards momentum in the stock.
Drug companies had been out of favour for several years amid concerns over political interference on pricing and blockbuster products losing patent protection.
Sentiment is now improving, helped by success with approving new drugs and the Congressional gridlock following the US midterm elections reducing the risk of disruptive, government-dictated price changes in that part of the world.
AstraZeneca is big in oncology which is the study of cancer. The company achieved a major breakthrough a few months ago with one of the most important drugs in its cancer portfolio, Imfinzi, which has shown to improve patient survival rates.
STRENGTH IN ONCOLOGY
In October AstraZeneca reported positive progress with trials involving its Lynparza ovarian cancer drug. This week the US Food and Drug Administration granted Lynparza priority review status – something given to medicines that, if approved, would offer a significant improvement in the treatment, diagnosis, or prevention of serious conditions.
Investors should appreciate that pharma companies are high risk, even ones worth billions of pounds. There is no guarantee that drug developments will be successful and the sector is at risk of disruption from regulatory and political interference.
AstraZeneca has set itself $40bn sales target in 2023. It stems back to when management fought off a takeover bid from Pfizer in 2014 and needed to be seen as having strong ambitions.
Big sales targets are always a risk as failure to hit them can be negative for a company’s share price. Investment bank Credit Suisse forecasts AstraZeneca will achieve $31bn of sales in 2023, adding the full target would only be hit if its entire drug pipeline is successful.
While we’re five years away from needing to measure this target, it is something for investors to watch closely.
The near-term focus is on continued success with its cancer drugs, as well as product news linked to treatments for anaemia, lupus and diabetes.
Finally, don’t be shocked when AstraZeneca reports its 2018 financial results as pretax profit is forecast to fall by 14.8% to $5.84bn. The market is fully aware of the trend with earnings and the focus is on the future where profit is forecast to recover to $5.96bn in 2019 and then hit $6.37bn in 2020.
The dividend is forecast to stay flat at $2.80 (216.66p) for the foreseeable future, implying a decent 3.4% yield.