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Questor share tip: AstraZeneca still a long term buy

The pharmaceutical giant has an exciting pipeline of new drugs that could boost shares, says Questor

Pharmaceutical companies 'defining a new contract with society'
Drug makers are looking to drive a better return on their research investment and shore up their pipelines.

AstraZeneca
£39.34-13p
Questor says BUY

PEOPLE in the developed world are getting older and fatter, leading some medical experts to worry about a coming diabetes epidemic.

AstraZeneca has a pipeline of drugs that will target these problems, and if they receive regulatory approval then the shares could double during the next five years.

The company has reorganised its research to target breathing problems, heart disease and cancer, which are all health issues associated with an ageing population.

The group has 11 drugs in the final stage, phase III, of clinical trials and recently paid $4.5bn (£2.7bn) to take full control of a diabetes drug joint venture with US firm Bristol-Myers Squibb.

Yesterday, the FTSE 100-listed drugs company got a boost when one of its diabetes drugs from this alliance, Xigduo, was approved in Europe. Analysts at Liberum Capital estimate new drug discoveries could replace $4bn, or 17pc, of current total group revenue by 2019.

There are, of course, risks that the new drugs could fail to receive approval, in which case profits will continue to fall. Astra has been suffering for more than a decade as patents on blockbuster drugs, such as cholesterol reduction medication Crestor, expire and cheaper copycats are made.

In Astra’s most recent update, sales were down 4pc and pre-tax profits fell 22pc.

Consensus estimates are for revenue to fall to £15.5bn and pre-tax profits to slip by £154m to £3.34bn, giving earnings per share of 274p in the year ended December 31. Questor believes that, on the whole, analysts’ estimates are far too downbeat. The British drug giant said itself that it expects sales to start climbing in 2017 thanks to a stronger pipeline of new drugs.

The shares are currently trading on 13.2 times forecast earnings and offer a prospective dividend yield of 4.4pc.

AstraZeneca shares are trading at a discount to sector peer GlaxoSmithKline, which looks unfair. The shares have risen by £4.60, or 14pc, since Questor recommended them (Buy, £34.59, December 3) and we retain that advice. Buy.