FTSE 100 stocks have faced a downturn in recent months. Indeed, year-to-date, the Footsie has sunk over 5%, as inflationary fears have caused many problems among UK companies. That said, it’s vrtually flat over 12 months.
Fears of a recession have also depressed investor sentiment, especially because this may lead to profit downgrades. However, the FTSE 100 has still outperformed other global indexes, such as the S&P 500 and the Nasdaq. Year-to-date, the S&P 500 has dipped 20% (and almost 11% in a year), while the Nasdaq has fallen 22% (and 18% in a year).
This outperformance has been driven by a few individual companies that are performing well, such as oil giants BP and Shell. But one of the top-performing FTSE 100 stocks is pharmaceutical giant AstraZeneca (LSE: AZN), which has climbed 30% year-to-date and 27% in the past year. It has now reached its all-time high, despite wider market volatility.
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Trading update
The recent Q1 AstraZeneca trading update was extremely strong. Total revenues increased 60% to $11.4bn, aided by the contribution of the company’s acquisitions, as well as plenty of organic growth. Core earnings per share were also able to increase to $1.89, which was 20% higher at a constant exchange rate.
There were some negatives from the trading update, however. This included the multitude of costs arising from the recent acquisition of Alexion, including a $1.2bn charge resulting from revaluing Alexion’s inventory. Research and development costs also increased by 36% year-on-year. This meant that reported earnings per share, which includes all these costs, declined 73% year-on-year to $0.25. This may be a risk moving forwards.
However, I’m not overly worried about these additional costs. In fact, for FY22, the group expects total revenues to increase by a “high teens percentage”. Core earnings per share are also expected to increase by a “mid-to-high twenties percentage”. These strong signs of growth offset my fears about the rising costs.
A focus on acquisitions
AstraZeneca has focused on making several acquisitions in recent months to fuel growth. While this has resulted in major acquisition costs and net debt reaching over $25bn, I believe the positives outweigh the negatives. For example, the firm’s $39bn acquisition of Alexion brings many rare diseases treatments into the AstraZeneca fold. This is likely to boost revenues significantly.
It also recently took over TeneoTwo in a $1.27bn deal, to strengthen the group’s oncology portfolio. At the heart of this deal is TeneoTwo’s experimental treatment for lymphoma. If this drug can take off, AstraZeneca’s revenues and profits may be boosted even further.
What am I doing with this FTSE 100 stock?
With 177 projects in the development pipeline as of the end of 2021, AstraZeneca is one of the most promising pharma stocks moving forwards. It has also seen many positive trials for its new breast cancer drug Enhertu, which has apparently reduced the risk of the disease by 50%. This is another factor that could boost the FTSE 100 stock in the near future.
For these reasons, I feel that the recent surge in the AstraZeneca share price is justified. Due to its immense potential moving forwards, I am tempted to open a small position for my portfolio.
