Most shares have performed badly in 2020, but a select few have done very well. Some, like AstraZeneca (LSE: AZN), have had a pretty flat year, but they’ve outperformed the FTSE 100. And that alone is, in my view, a terrific result. The AstraZeneca share price is down a couple of percent in 2020, well ahead of the Footsie’s 16% fall.
At one stage, AstraZeneca was doing a lot better. The early pandemic shock led many investors to pretty much abandon shares altogether. But once nerves started to settle, many piled into pharmaceuticals shares. That’s understandable, and some smaller biotechnology stocks scored quick multi-bagger gains.
At one stage in July, the AstraZeneca share price had climbed 33% from its start-of-year price. But the rush to the pharmaceuticals sector was largely indiscriminate. And it soon became clear any Covid-19 vaccines that were developed weren’t going to be sold at get-rich-quick prices.
The AstraZeneca vaccine has been developed in partnership with Oxford University, and it’s effectively going to be sold at cost price (including to developing countries). Estimates of the actual price vary, but it sounds like around £2-£3 per dose.
AstraZeneca share price retreat
As investors realised they wouldn’t be filling their pockets overnight, AstraZeneca shares fell back. At the time of writing, it looks like we’ll be close to break-even by the end of the year. But that’s still a decent, wealth-preserving performance in a torrid year. And it looks a little bit better with the expected 2.8% dividend yield included.
If that’s what’s happened in 2020, what does 2021 and beyond hold? For me to get a handle on that, I’d need to eliminate any Covid-19 vaccine effect and think about the company’s genuine long-term prospects. And that’s a bit tricky right now.
AstraZeneca’s turnaround under chief executive Pascal Soriot was always going to take a long time. And its shares were surely set for a tentative few years. The company was losing some key blockbuster patents. And it does usually take a very long time to get a new drug through the development, testing and approvals process. The accelerated Covid-19 programme in 2020 was, and I’m sure will remain, very much an exception.
Back to long-term growth?
Now, after years of earnings falls, analysts are finally predicting a return to EPS growth in 2020 and beyond. The big question is whether this is a short-term rebound or the start of a long-term bull run for AstraZeneca. We’ve seen a couple of false starts in recent years and I’d expected the 2016-17 period to mark the turnaround. I was wrong that time.
But I do now believe we’re finally heading into a sustainable growth period. But how much of the potential is already built into the AstraZeneca share price? For the current year, forecasts suggest a P/E multiple of around 25. That’s high for a blue-chip FTSE 100 company. It would drop on 2021 expectations, to about 20.
With the future growth that I think is finally there, I’d rate that as fair value. I do expect further volatility, and possible some share price weakness, in 2021. But I’d buy AstraZeneca for the long term.
