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Earnings

Will Q4 earnings results leave AstraZeneca’s share price in good health?

Pharmaceutical giant AstraZeneca has been on the road to recovery in recent years. What can we expect from full-year results this week? And how will earnings affect the firm’s share price?

For Anglo-Swedish pharmaceuticals giant AstraZeneca [AZN], 2019 proved to be just what the doctor ordered. The company’s share price gained by 35.6% through the year.

AstraZeneca raised its sales guidance twice in 2019, boosted by demand for new cancer, heart disease and diabetic drugs. It now has 164 treatments in Phase I, II or III trials or entering life-cycle management across oncology, cardiovascular and respiratory.

 

 

 

However so far this year, AstraZeneca’s share price has remained largely flat (down 1.84% through 13 February). Can AstraZeneca, which delivers its Q4 and full-year results on tomorrow, achieve a fifth successive quarter of rising revenues?

 

Will Q4 be the remedy?

In the third quarter, AstraZeneca reported that total revenue rose by 20%, driven by growth in oncology demand throughout the year. The company expects this trend to continue in the fourth quarter, forecasting low to mid-teens digit growth in product sales for the full year.

The company also upgraded its sales guidance for the second consecutive quarter in Q3. “Another strong performance from our new medicines accompanied impressive results from our key markets, most notably in China, the US and Japan,” CEO Pascal Soriot stated.

“Another strong performance from our new medicines accompanied impressive results from our key markets, most notably in China, the US and Japan” - CEO Pascal Soriot

 

Karl Loomes writing in Motley Fool believes the company has carved its own niche with cancer treatments focused on early detection, prevention and treatment, giving it an advantage, saying the company had been proactive in taking on “the growth of cheap, generic versions of branded drugs”.

One recent blow for the company, however, has been the decision of an independent monitoring committee to stop the trials of its drug Epanova. This is expected to lead to a $100m write-down in its fourth-quarter earnings.

 

Market Cap $127.973bn
PE ratio (TTM) 61.51
EPS (TTM) 0.80
Quarterly Revenue Growth (YoY) 20.00%

AstraZeneca share price vitals, Yahoo Finance, 13 February 2020

 

A bullish response

Wall Street analysts expects AstraZeneca will report earnings of $0.48 for the fourth quarter, down on the last quarter’s EPS of $0.50, according to MarketBeat, while Zacks Equity Research expects EPS of $0.53 for the quarter — a 32% year-on-year drop from the $0.79 reported for the same quarter last year.

AstraZeneca is the seventh biggest dividend payer in the FTSE 100 in cash terms, according to AJ Bell, with a consistent annual pay-out of $2.80 a share since 2017. According to Zacks, analysts are also anticipating full-year earnings of $1.8050 per share for the current year, reduced in the past week to its previous estimate of $1.81.

“I don’t expect to see 19% earnings growth every year, but what if AstraZeneca could manage to average 10% per year until the next decade?” Alan Oscroft asks, writing in the Motley Fool. If this happened, he said, this could achieve EPS if 843p in 2030.

“If the share price didn’t move, we’d see that P/E multiple drop to only around nine, so I’d expect the bull run to continue, though more modestly, over the decade,” Oscroft writes. “Is such earnings growth feasible? It depends, obviously, on the profitability of the drugs the firm produces.”

“Is such earnings growth feasible? It depends, obviously, on the profitability of the drugs the firm produces” - Alan Oscroft

 

Among a survey of 27 analysts by CNN, 20 recommend the share price as a buy, one as an outperform, three as a hold, and three as a sell. The median 12-month share price target among 24 analysts of $54.97 would represent a 10.87% change on 12 February’s close.

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