It’s up 15.6% so £10,000 invested in AstraZeneca (LSE:AZN) shares one year ago, would now be worth approximately £11,560. Clearly, this isn’t a bad return for investors who would have also received around £240 in the form of dividends.
What’s behind the rise?
AstraZeneca’s share price surge is attributed to its robust financial performance, particularly in 2024, where total revenue and core earnings per share (EPS) grew by 21% and 19%, respectively. The company’s oncology segment led the charge with a 24% revenue increase. Other areas like cardiovascular and respiratory therapies also contributed to growth.
However, it’s not been a gentle rise. The stock has dipped on several occasions, particularly in late 2024 due to challenges in China. The arrest of AstraZeneca’s country president and other executives, coupled with a probe into alleged illegal data collection, led to sales falling in the region. This caused a temporary decline in the share price.
More broadly, the company’s long-term potential is a big plus for investors. The company aims to deliver $80bn in total revenue by the end of the decade, up from $54bn, driving improved earnings during the period. Moreover, AstraZeneca’s focus and positioning on oncology is undoubtedly a strategic strength, as the company continues to advance innovative treatments that address critical unmet needs in cancer care.
Dig deeper and it looks undervalued
Despite the China issue — which may have limited financial repercussions but could harm its in-country reputation — many analysts view AstraZeneca as undervalued. Morgan Stanley recently initiated coverage with an Overweight rating, citing the stock as a “compelling entry point” due to its strong pipeline and exposure to high-value markets like oncology, cardiovascular/renal treatments, and next-generation immuno-oncology. The bank anticipates double-digit bottom-line (net income or profit) expansion in 2025, driven by key drugs such as Imfinzi, Enhertu, and Teszpire.
From a valuation perspective, AstraZeneca may appear more expensive than some of its mega-cap pharma peers. For example, its forward price-to-earnings (P/E) ratio of 17.5 times is far high than Pfizer at 8.6 times. However, it’s a different picture when we use growth-adjusted metrics. AstraZeneca’s strong growth projections lead us to a price-to-earnings-to-growth (PEG) ratio of 1.3 versus Pfizer’s 3.3. More broadly, this PEG ratio represents a 23% discount to the healthcare sector average.
The bottom line
AstraZeneca’s revenue aim is reliant on the company launching 20 new medicines and investing in disruptive innovation and sustainable practices. Yet things are never straightforward in pharma and biotech. In fact, companies can spend billions only to achieve trial data that doesn’t show a significant improvement against the benchmark treatment. This introduces a degree of risk for investors.
Nonetheless, with a robust pipeline and strong portfolio, I’m backing AstraZeneca to succeed over the long run. Simply, I’m considering adding to my position, which is mainly in my SIPP, and leaving it for a decade. There may be ups and downs, but its focus on oncology and investments in disruptive innovations are long-term drivers.
