ii view: AstraZeneca again raises sales estimates

Cancer drug innovation and Emerging Market sales underlie an upward rerating at AstraZeneca.

Third-quarter results 

• Revenue up 20% to $6.4 billion
• Operating profit down 11% to $757 million
• Earnings Per Share (EPS) down 33% to 23 US cents 

Guidance:

• Product sales are now expected to increase by a low to mid-teens percentage - the prior guidance was for a low double-digit percentage increase
• Reiterates full-year core EPS guidance of $3.50 to $3.70

Chief executive Pascal Soriot said:

"With AstraZeneca growing at pace, our sales guidance has been upgraded for the second consecutive quarter. Another strong performance from our new medicines accompanied impressive results in our key markets, most notably in China, the US and Japan. The performance reinforces our confidence in delivering sustainable earnings growth.”

ii round-up:

Employing over 60,000 people, biopharmaceutical company AstraZeneca (LSE:AZN) once again raised its full-year sales estimates, buoyed by newer oncology or cancer treatments. 

Oncology sales jumped by 46% in the quarter and are up 50% year to date. Emerging Market sales grew by a quarter, with sales in China up 35%.

US and Japanese sales rose by 17% and 31% respectively while European sales increased by a more pedestrian 1%. 

All three treatment areas of Oncology, CVRM (Cardiovascular, Renal and Metabolism) and Respiratory have generated sales growth in the year to date, although favourable inventory levels are not expected to repeat in the final quarter. 

The share price rose by more than 4% in afternoon UK stock market trading. 

ii view:

For investors, excitement created by its cancer products has underpinned a re-rating of the shares. They now trade on a forward price/earnings (PE) ratio close to 25 compared to a 10-year average of less than 15 and a forward PE of below 15 at rival GlaxoSmithKline (LSE:GSK). 

As such, the dividend yield is now more reflective of growth, although arguably still attractive at around 3% (not guaranteed) on a forward basis. These results appear to justify the lofty valuation and reflect the progress being made.

Positives: 

• Management upgraded its product sales forecasts for 2019
• Emerging Markets its largest region at 35% of total sales
• A global strategic oncology collaboration with Merck & Co Inc (NYSE:MRK) was agreed in 2017

Negatives:

• Other medicine sales including those where patents have expired fell by 9%
• Operating expenses increased by 11% year-to-date
• Dividend cover at 1.3 times is below the three-year average of 1.5 times

The average rating of stock market analysts:

Buy