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How Should You Play AstraZeneca (AZN) After Q2 Beat, View Raise?
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AstraZeneca (AZN - Free Report) announced strong second-quarter results on Jul 25. It beat estimates for both earnings and sales. While sales rose 17% at constant exchange rates (CER), core earnings fell 3% year over year. Among key drugs, Tagrisso, Ultomiris, Farxiga & Calquence did well, while Lynparza & Imfinzi sales were slightly weak. The launch of the new drug Truqap has been strong.
Sales of cancer drugs, Tagrisso and Imfinzi, rose 12% and 18%, respectively. Diabetes drug Farxiga rose 32%. Backed by a strong performance in the first half of the year, AstraZeneca raised its sales and earnings growth expectations for the year. Total revenues and core earnings are expected to increase at a mid-teens percentage at CER versus the prior expectation of a low double-digit to low teens percentage range.
Despite the earnings beat and guidance increase, AstraZeneca’s stock declined the day after the earnings release, probably as investors expected stronger results. However, the stock has recovered since then.
Nonetheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play AstraZeneca’s stock in the post-earnings scenario.
Strong Portfolio of Blockbuster Drugs
AstraZeneca boasts a diversified geographical footprint as well as a product portfolio with several blockbuster medicines. AstraZeneca now has 12 blockbuster medicines in its portfolio, with sales exceeding $1 billion, including Tagrisso, Fasenra, Farxiga, Imfinzi, Lynparza, Soliris and Ultomiris. These drugs are driving the company’s top line with AstraZeneca launching them in more markets and in an increased number of indications. By 2030, AstraZeneca expects to have 25 blockbuster medicines in its portfolio, which is almost doubled the number of blockbusters it has now. Almost every new product it has launched in recent years has done well.
Strong Position in Oncology Space
Oncology is AstraZeneca’s biggest segment. AstraZeneca is working on strengthening its oncology product portfolio through label expansions of existing products and progressing oncology pipeline candidates. Oncology sales now comprise around 40% of AstraZeneca‘s total revenues and rose 22% in the first half of 2024. The strong oncology performance was driven by medicines such as Tagrisso, Lynparza Imfinzi, Calquence and Enhertu (in partnership with Daiichi Sankyo).
A key new cancer drug approval was Truqap for HR-positive, HER2-negative (HR+ HER2-) breast cancer. The drug has seen a robust launch, recording sales of $142 million in the first half of 2024. AstraZeneca also has some important oncology candidates in its pipeline, including datopotamab deruxtecan in partnership with Daichii Sankyo, which is under review in the United States for non-squamous non-small cell lung cancer and HR+ HER2- breast cancer.
Non-Cancer Pipeline Progress
AstraZeneca has a huge pipeline and AstraZeneca has also been engaged in external acquisitions and strategic collaborations to boost its pipeline.
AstraZeneca has been making significant progress with its pipeline in other areas like cardiovascular health, immunology and rare diseases. Some key new drug approvals are Voydeya to treat extravascular hemolysis in adults with the rare disease paroxysmal nocturnal hemoglobinuria (PNH), Wainua [in partnership with Ionis (IONS - Free Report) ] for hereditary transthyretin-mediated amyloidosis, commonly referred to as ATTRv-PN and respiratory syncytial virus (“RSV”) antibody Beyfortus [in partnership with Sanofi (SNY - Free Report) ]. A key pipeline candidate is ALXN-2220 being developed for transthyretin amyloid cardiomyopathy.
AstraZeneca is investing in disruptive innovation and transformative new technologies and platforms to discover novel medicines. The company is exploring modalities such as cell, gene and RNA therapies, epigenetics and oligonucleotides to identify new treatment approaches.
This year, it has acquired small biotechs like Gracell, Fusion Pharmaceuticals and Amolyt to strengthen its pipeline.
Valuation, Estimates and Price
AstraZeneca’s stock has risen 21.5% so far this year, outperforming an increase of 18.8% for the industry. AstraZeneca’s stock has also outperformed the sector as well as the S&P 500 index, as seen in the chart below. The stock has also been trading above its 200-day moving average since the end of March.
AstraZeneca Stock Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AstraZeneca appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 18.41 forward earnings, lower than 19.70 for the industry. The stock is also significantly cheaper than rivals like Eli Lilly and Novo Nordisk.
AZN Stock Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 earnings has risen from $4.03 per share to $4.05 per share over the past 30 days. For 2025, earnings estimates have risen from $4.67 to $4.72 per share over the same timeframe.
Image Source: Zacks Investment Research
Conclusion
AstraZeneca has its share of problems. AstraZeneca’s diabetes franchise faces stiff competition, while the respiratory unit is being hurt by pricing pressure.
However, the company is confident of seeing sustained growth for several years, driven by sales growth of its key medicines, Tagrisso, Imfinzi, Lynparza, Ultomiris, Farxiga and Fasenra. Royalties and profit share from partnered medicines is a key contributor to AstraZeneca’s revenues and profits.
Backed by its new products and pipeline drugs, AstraZeneca believes it can post industry-leading top-line growth in the 2025-2030 period. AstraZeneca expects to generate $80 billion in total revenues by 2030. By the said time frame, AstraZeneca plans to launch 20 new medicines. It believes that many of these new medicines will have the potential to generate more than $5 billion in peak-year revenues. The company is also on target to achieve a mid-30s percentage core operating margin by 2026.
Investors who own AstraZeneca’s stock may stay invested as the company shows potential to generate consistent profits. AstraZeneca also has an attractive dividend yield of around 4%. Consistently rising estimates indicate investors’ optimistic outlook for growth. Buying the stock of this fundamentally strong company at its present reasonable valuation can prove prudent for long-term investors who are interested in buying blue chip companies.
Image: Bigstock
How Should You Play AstraZeneca (AZN) After Q2 Beat, View Raise?
AstraZeneca (AZN - Free Report) announced strong second-quarter results on Jul 25. It beat estimates for both earnings and sales. While sales rose 17% at constant exchange rates (CER), core earnings fell 3% year over year. Among key drugs, Tagrisso, Ultomiris, Farxiga & Calquence did well, while Lynparza & Imfinzi sales were slightly weak. The launch of the new drug Truqap has been strong.
Sales of cancer drugs, Tagrisso and Imfinzi, rose 12% and 18%, respectively. Diabetes drug Farxiga rose 32%. Backed by a strong performance in the first half of the year, AstraZeneca raised its sales and earnings growth expectations for the year. Total revenues and core earnings are expected to increase at a mid-teens percentage at CER versus the prior expectation of a low double-digit to low teens percentage range.
Despite the earnings beat and guidance increase, AstraZeneca’s stock declined the day after the earnings release, probably as investors expected stronger results. However, the stock has recovered since then.
Nonetheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play AstraZeneca’s stock in the post-earnings scenario.
Strong Portfolio of Blockbuster Drugs
AstraZeneca boasts a diversified geographical footprint as well as a product portfolio with several blockbuster medicines. AstraZeneca now has 12 blockbuster medicines in its portfolio, with sales exceeding $1 billion, including Tagrisso, Fasenra, Farxiga, Imfinzi, Lynparza, Soliris and Ultomiris. These drugs are driving the company’s top line with AstraZeneca launching them in more markets and in an increased number of indications. By 2030, AstraZeneca expects to have 25 blockbuster medicines in its portfolio, which is almost doubled the number of blockbusters it has now. Almost every new product it has launched in recent years has done well.
Strong Position in Oncology Space
Oncology is AstraZeneca’s biggest segment. AstraZeneca is working on strengthening its oncology product portfolio through label expansions of existing products and progressing oncology pipeline candidates. Oncology sales now comprise around 40% of AstraZeneca‘s total revenues and rose 22% in the first half of 2024. The strong oncology performance was driven by medicines such as Tagrisso, Lynparza Imfinzi, Calquence and Enhertu (in partnership with Daiichi Sankyo).
A key new cancer drug approval was Truqap for HR-positive, HER2-negative (HR+ HER2-) breast cancer. The drug has seen a robust launch, recording sales of $142 million in the first half of 2024. AstraZeneca also has some important oncology candidates in its pipeline, including datopotamab deruxtecan in partnership with Daichii Sankyo, which is under review in the United States for non-squamous non-small cell lung cancer and HR+ HER2- breast cancer.
Non-Cancer Pipeline Progress
AstraZeneca has a huge pipeline and AstraZeneca has also been engaged in external acquisitions and strategic collaborations to boost its pipeline.
AstraZeneca has been making significant progress with its pipeline in other areas like cardiovascular health, immunology and rare diseases. Some key new drug approvals are Voydeya to treat extravascular hemolysis in adults with the rare disease paroxysmal nocturnal hemoglobinuria (PNH), Wainua [in partnership with Ionis (IONS - Free Report) ] for hereditary transthyretin-mediated amyloidosis, commonly referred to as ATTRv-PN and respiratory syncytial virus (“RSV”) antibody Beyfortus [in partnership with Sanofi (SNY - Free Report) ]. A key pipeline candidate is ALXN-2220 being developed for transthyretin amyloid cardiomyopathy.
AstraZeneca is investing in disruptive innovation and transformative new technologies and platforms to discover novel medicines. The company is exploring modalities such as cell, gene and RNA therapies, epigenetics and oligonucleotides to identify new treatment approaches.
This year, it has acquired small biotechs like Gracell, Fusion Pharmaceuticals and Amolyt to strengthen its pipeline.
Valuation, Estimates and Price
AstraZeneca’s stock has risen 21.5% so far this year, outperforming an increase of 18.8% for the industry. AstraZeneca’s stock has also outperformed the sector as well as the S&P 500 index, as seen in the chart below. The stock has also been trading above its 200-day moving average since the end of March.
AstraZeneca Stock Performance
From a valuation standpoint, AstraZeneca appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 18.41 forward earnings, lower than 19.70 for the industry. The stock is also significantly cheaper than rivals like Eli Lilly and Novo Nordisk.
AZN Stock Valuation
The Zacks Consensus Estimate for 2024 earnings has risen from $4.03 per share to $4.05 per share over the past 30 days. For 2025, earnings estimates have risen from $4.67 to $4.72 per share over the same timeframe.
Conclusion
AstraZeneca has its share of problems. AstraZeneca’s diabetes franchise faces stiff competition, while the respiratory unit is being hurt by pricing pressure.
However, the company is confident of seeing sustained growth for several years, driven by sales growth of its key medicines, Tagrisso, Imfinzi, Lynparza, Ultomiris, Farxiga and Fasenra. Royalties and profit share from partnered medicines is a key contributor to AstraZeneca’s revenues and profits.
Backed by its new products and pipeline drugs, AstraZeneca believes it can post industry-leading top-line growth in the 2025-2030 period. AstraZeneca expects to generate $80 billion in total revenues by 2030. By the said time frame, AstraZeneca plans to launch 20 new medicines. It believes that many of these new medicines will have the potential to generate more than $5 billion in peak-year revenues. The company is also on target to achieve a mid-30s percentage core operating margin by 2026.
Investors who own AstraZeneca’s stock may stay invested as the company shows potential to generate consistent profits. AstraZeneca also has an attractive dividend yield of around 4%. Consistently rising estimates indicate investors’ optimistic outlook for growth. Buying the stock of this fundamentally strong company at its present reasonable valuation can prove prudent for long-term investors who are interested in buying blue chip companies.
AstraZeneca has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.