Experienced Investor
Stock of the week: AstraZeneca
Helal Miah, investment research analyst at The Share Centre, picks pharmaceutical giant AstraZeneca as stock of the week.
This week, our share of the week is a company that we upgraded our recommendation of from a ‘hold’ to a ‘buy’ as our outlook on the world-leading pharmaceutical group strengthens. Until recently, we thought that AstraZeneca did not put enough emphasis on mitigating the sales decline it, as well as most other pharmaceutical companies, had experienced in recent years. However, interested investors will appreciate that since the new management team was appointed, the company has emphasised the need for a greater focus on spending on R&D.
Although group sales fell by 5% to $17,417m in the first nine months of 2016, the new drugs that were introduced recently look promising. Encouragingly, the renewed focus on R&D is helping to build the firm’s pipeline portfolio. This should help deliver revenue growth again in a few years. In the meantime, the sales declines and heavy R&D spending will hurt earnings, but cost controls will help mitigate this to a certain extent.
If investors look beyond the current sales declines we believe that AstraZenaca is looking like an attractive opportunity. The company pays a dividend in the region of 4.7% and after the recent share price retreat it is trading at roughly 13.7x earnings, slightly below the peer group average. We have therefore increased our recommendation to a ‘buy’ for investors seeking income and willing to accept a low to medium level of risk.
