ii view: AstraZeneca shares near record high on profit optimism

Achieving regulatory approvals and with its biggest slug of sales coming from cancer treatments. We assess prospects.  

Third-quarter results to 30 September

• Currency adjusted revenue up 19% to $10.98 billion (£9.66 billion)
• Core earnings per share up 55% to $1.67
• Net Debt up $220 million year to date to $24.54 billion

Guidance:

• Now expects currency adjusted full-year core earnings per share to increase by high 20’s to low 30’s percent, up from a mid-to-high 20's increase

Chief executive Pascal Soriot said:

"AstraZeneca continues to see the benefit of our sustained investment in R&D, with 19 major regulatory approvals since our last earnings call.”

ii round-up:

Pharma giant AstraZeneca (LSE:AZN) today detailed both sales and profits ahead of City estimates, helping it raise its full-year profit forecast. The company now expects a much bigger year-over-year increase in currency adjusted core earnings per share. 

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Key regulatory approvals total 19 since its last trading update, including US approvals for treatments in relation to both breast and liver cancers. Annual core earnings per share are now expected to increase by a high 20's to low 30's percentage, up from a prior mid-to-high 20's improvement. 

AstraZeneca shares rose by more than 3% in UK trading having come into this latest announcement already up by a quarter year-to-date. After rallying 17% in the past few weeks, the shares are now just a few percent below a new record high. Rival GSK (LSE:GSK), which recently demerged its consumer healthcare business Haleon (LSE:HLN), is down 13% in 2022, vet medicines maker Dechra Pharmaceuticals (LSE:DPH) has halved year-to-date, while the FTSE All Share index is down 5%.

Cancer product related sales at Astra rose by a fifth in the quarter, with sales for Cardiovascular, Renal and Metabolism (CVRM) conditions up by just over a tenth and rare disease sales increasing by 4%.

Geographically, sales in the US led the way, rising by just over a third. Sales in the emerging markets, hindered by falling demand for its Covid-19 vaccine Vaxzevria, fell by a tenth on an actual basis or 4% when adjusting for currency moves. 

Management guidance for full-year sales growth remain unchanged, with an increase in the low 20's percent year-over-year forecast. 

Four-quarter and full-year results are scheduled for 9 February.

ii view:

Founded in 1999 following a merger, Anglo-Swedish pharmaceutical and biotechnology company AstraZeneca today operates in over 100 countries. Its core drug focus includes both Oncology, or cancer treatments, and drugs for Cardiovascular, Renal and Metabolism (CVRM). It currently has over 170 treatment projects in its pipeline with 13 new molecular entities at a late stage. 

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For investors, required investment costs in drug development continue to weigh. Sales for its emerging markets business also fell in this latest quarter, while its previous $39 billion purchase of Alexion is still yet to be fully justified.   

More favourably, progress in drug innovation and approvals is evident. Cancer treatment sales accounted for over a third of overall revenues during in this latest period, while the dividend yield is forecast to rise to nearer to 2.5% from just under 2%.

On balance, and with analysts estimating a fair value share price of close to £123, AstraZeneca looks to remain deserving of a place in many investors’ portfolios. 

Positives: 

• Cancer treatment sales now total around a third of overall sales
• Alexion adds to its diversity of drug treatments

Negatives:

• Involved in various legal proceedings considered typical to its business, including litigation and government investigations
• Net debt rose following the previous purchase of Alexion

The average rating of stock market analysts:

Buy