Is Now the Time to Buy AstraZeneca?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at AstraZeneca (LSE: AZN  ) (NYSE: AZN  )  to determine whether you should consider buying the shares at 2,930 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So, let's look at the numbers:

Stock Price 3-year EPS growth Projected P/E PEG Yield 3-year dividend growth Dividend cover
AstraZeneca 2,930 pence 15% 7.6 N/A 6.3% 16.6% 2.2

The consensus analyst estimate for next year's earnings per share is $6.04 (17% fall) and dividend per share is $2.80 (4% growth).

Trading on a projected P/E of 7.6, AstraZeneca looks cheaper than its peers in the Pharmaceutical & Biotech sector, which are currently trading on an average P/E of 11.4. However, AstraZeneca's P/E ratio and negative growth rate gives a PEG ratio of less than 0. With a negative result, the PEG ratio cannot help with my analysis.

Supporting a 6.3% yield, the dividend is above average for the Pharmaceutical & Biotech sector, which currently offers a 5.2% average yield. AstraZeneca also has a three-year compounded dividend growth rate of 16.6%.

The dividend is more than two times covered, giving AstraZeneca room for payout growth. AstraZeneca returned a total of $6.1 billion to shareholders through share buybacks during 2010 and 2011. However, this year's buyback has been put on hold.

AstraZeneca has a strong yield, but what about growth?
Personally, I think AstraZeneca is going to see very tough times ahead. In the company's latest results, the firm reported revenues had fallen 15%. The shortfall was due to the loss of patent exclusivity on several treatments and the disposals of Astra Tech and Aptium. On the other hand, at least group saw strong revenue growth of 23% in developing markets.

On top of these declining revenues, AstraZeneca's product pipeline has recently come under pressure. There have been several late-stage failures in clinical trials, which were once expected to replace the company's older treatments.

However, recent speculation has surrounded AstraZeneca after its new chief executive suspended its share buyback programme. I believe the suspension is in preparation for an acquisition spree -- AstraZeneca has plenty of cash to go shopping, with more than $6.8bn in the bank.

Indeed, AstraZeneca has already been busy, with a recent deal with U.S. rival Pfizer in which Pfizer will market AstraZeneca's heartburn treatment.

Overall, though, I believe the uncertainty surrounding the company's product pipeline is priced into AstraZeneca's low valuation. Even though there could be tough times ahead for the company, it does have a strong cash balance and a well-covered dividend yield, and so I believe now looks to be a good time to buy AstraZeneca at 2,930 pence.

More FTSE opportunities
As well as AstraZeneca, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held By Britain's Super Investor." This exclusive report reveals the favourite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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