Shares in medicines play AstraZeneca (LSE: AZN) have endured a tumultuous ride during the past month amid swirling investor appetite.
The London firm saw its value collapse by a tenth in just over a fortnight at one point in August, pushing AstraZeneca to levels not visited since April 2014 around £39 per share. But shares have rocketed back up since then and the business was recently dealing around £42.80 per share, up 10% from last month’s troughs.
I wouldn’t rule out further volatility, naturally, as the prospect of more worrying economic data from China is a strong possibility. Still, for more patient investors I believe AstraZeneca is a terrific stock selection as a rejuvenated product pipeline looks set to deliver brilliant long-term gains.
Emerging markets remain strong
AstraZeneca’s weakness last month in light of rising fears over China, and therefore growth markets across South-East Asia and beyond, is understandable given the firm’s growing reliance on these geographies. The business saw emerging market sales rocket 14% higher during January-June, and sales to Chinese health providers leapt 19% in the period to $1.3bn.
AstraZeneca has logically put developing regions near the top of its growth strategy, and is “accelerating investment in… emerging markets’ capabilities, with a focus on China and other leading markets such as Russia and Brazil.“
Indeed, global healthcare spend should continue to climb in the years ahead as economic growth in new regions steams higher and the needs of a rising middle class increase. And AstraZeneca is putting itself at the front of the queue by upping its expenditure in these territories.
Great value across the board
Despite AstraZeneca’s recent charge back up the share price charts, I believe the business still provides plenty of bang for one’s buck. The impact of further exclusivity losses are expected to cause a marginal earnings slip in 2015 — a fourth successive decline if realised — and an extra 4% drop is chalked in for 2016.
However, these projections still produce very-attractive P/E multiples of 15.3 times and 15.9 times correspondingly — any reading around 15 times is broadly considered decent value. On top of this, AstraZeneca is expected to keep the full-year dividend locked at 280 US cents per share in both 2015 and 2016, yielding a FTSE-bashing 4.2%.
The business of drugs development is fraught with perils, of course, where disappointing clinical results can result in expensive product launch delays, not to mention many products failing to even leave the lab bench.
But with AstraZeneca doubling-down on developing the next generation of earnings drivers — core R&D investment advanced 24% in January-June, to $2.64bn — expanding its lab network across the globe, and building its position exciting growth areas like diabetes and respiratory care, I believe the firm’s growth prospects for the years ahead are compelling.