The question can sound untimely when the FTSE 100 pharmaceuticals giant’s share price is falling. The AstraZeneca (LSE: AZN) share price is down by almost 2% in today’s trading as I write, in continuation of the trend from the start of this week.
But I’m both a believer and investor in AZN. And every dip in its share price looks like an opportunity for me to buy. At a price of £76.5 per share, AZN is right now at around the same levels that were last seen in early April. The only difference is, at that time the share price was recovering from the stock market crash of late March. But since November, it has been sliding down.
Why the AstraZeneca share price fell
It would be a cause of worry at any other time, but not now. There are two reasons for this:
#1. Big picture: I see the AZN share price dip as part of a larger trend. Since the Covid-19 vaccine was successfully developed early last month, bulls have taken over the stock market. Stocks that had crashed in the lockdowns have suddenly become coveted. On the other hand, safer stocks like healthcare ones are suddenly out of favour.
#2. Acquisition of Alexion: The share price dropped even more when AZN announced its acquisition of US-based Alexion at a 45% premium in a cash and stock deal. I wouldn’t read too much into this, however. It’s not unusual for the acquirer’s share price to fall on such news, as I had pointed out in the case of the FTSE 100 online food delivery provider, Just Eat Takeaway, a few months ago. I think it’s worth underlining that JET’s share price reached all-time-highs by October, despite the decline.
Why it can rise to £100 (or more)
Keeping both these reasons in mind, I think there’s potential for the AZN share price to not just rise to £100, but even beyond. Let me elaborate with two more points to back up my argument.
#1. Consider the consensus – Often, thought not always, there’s merit in numbers. So if the average share price forecast of 24 analysts covering the AZN stock is £94 in 12 months’ time, as per the Financial Times, then I’m optimistic. That’s an over 23% increase from where it is now. That’s quite close to £100 and more bullish analysts put the target level much higher.
#2. Relatively less expensive – Even though, in terms of absolute levels, AZN is still one of the priciest FTSE 100 stocks, it’s looking increasingly less so in relative terms. At 40 times, its earnings ratio is comparable to that of many other stocks now. Compare this to the chemicals’ manufacturer Johnson Matthey, which has a ratio of 49 times. Or the likes of Prudential and Burberry, whose price-to-earnings (P/E) ratios are in three-digits now. As other stocks start looking increasingly pricey to investors, I reckon rationality will return to stock pricing and they will become bullish on AZN again.
I think AstraZeneca shares are still worth consideration at their current share price.