The last time I analysed AstraZeneca (LSE:AZN) shares was all the way back in April 2018. At the time, Neil Woodford had just sold the FTSE 100 pharmaceutical stock. I said, however, that it was worth holding on to.
Holding AZN shares was certainly the right move. Since that article, AstraZeneca’s share price has risen from 5,400p to 7,800p – a gain of around 44%. At one point in July, the share price was above 10,000p.
Would I buy AstraZeneca shares today though? Let’s take a look at the investment case.
AstraZeneca: the investment case
In today’s world, in which global populations are ageing and the burden of disease is increasing, I see AstraZeneca as well positioned for growth. Its areas of focus (Oncology; Cardiovascular, Renal and Metabolism; and Respiratory diseases) are all highly relevant today. And with a portfolio of speciality and primary care medicines, a global presence, and strength in the emerging markets, it looks well placed for success.
Of course, I can’t write an article about AstraZeneca and not discuss its Covid-19 vaccine. News that the group has developed a vaccine, in conjunction with Oxford University, is certainly exciting. However, this may not be the game-changer that some investors were hoping for. This is due to the fact that AZN has promised not to profit from the vaccine during the pandemic. The company’s approach has been to treat the development of the vaccine as a response to a global public health emergency and not a commercial opportunity. This explains why the share price hasn’t surged higher recently.
Revenue is climbing
Turning to the financials, AstraZeneca’s top-line growth has picked up recently, after stagnating for several years. Revenue in 2019 was $24.38bn, up from $22.09bn in 2018.
Looking ahead, City analysts forecast revenue of $26.43bn this year and $29.89bn next year, which is encouraging. Profits are also expected to rise. Last year, AZN’s net profit was $1.3bn. This year and next year, analysts forecast net profit of $5.3bn and $6.7bn respectively. This is all quite positive.
Balance sheet issues
There are some issues that concern me, however. One is the level of debt on the company’s balance sheet. At 30 September, this stood at $13.76bn. Total equity was $13.62bn. This debt-to-equity ratio is a little higher than I like to see.
The second is the valuation. Currently, AZN’s P/E ratio is 25.5 using this year’s earnings forecast. It falls to 20.7 using next year’s forecast. These valuations are not outrageously high. But they probably don’t leave a lot of room for error.
My view on AZN today
Weighing everything up, I continue to see AstraZeneca shares as a hold today.
If I owned the shares (I don’t), I’d hold on to them. If I didn’t, I’d keep them on my watchlist for now with a view to buying at a slightly cheaper valuation.
At the moment, I think there are probably better stocks to buy.
