Upon retirement, monthly wages generally become a thing of the past. Although Social Security can help, it's a great idea for someone to save enough money during their working years to sustain themselves in retirement -- and potentially cross that coveted $1 million mark. Doing so can help pave the way to financial independence in their golden years. And to achieve this goal, investing some of those savings into the stock market is a great move.
Let's look into one healthcare stock worth considering: AstraZeneca (AZN 5.38%). This U.K.-based drugmaker has historically outperformed the market, but what does the future hold for it?
AZN data by YCharts.
Strong financial results
Perhaps the biggest news AstraZeneca dropped this year was the acquisition of Alexion Pharmaceuticals, a biotech company that focuses on developing therapies for rare diseases. The deal, which closed in July, cost $39 billion in cash and stock. It also helped it bolster its lineup and deliver even stronger financial results.
In the third quarter, the company reported $9.9 billion in total revenue, representing a 50% increase over the prior-year quarter. This year-over-year increase isn't a perfect comparison, since it includes AstraZeneca's recent acquisition. But it's worth noting that some of the company's key business segments that pre-date the Alexion deal performed well during the quarter, too. For instance, sales of the drugmaker's oncology unit jumped by 18% year over year to $3.4 billion.
Meanwhile, the company's cardiovascular, renal, and metabolism segment saw its sales increase by 16% year over year to $2.1 billion.
Image source: Getty Images.
Overall, the company's products seem to be performing well, even setting aside those it got in its recent blockbuster acquisition. The company's COVID-19 vaccine, AZD1222, is also meaningfully contributing to its top line, racking up $1.1 billion in sales in the third quarter. AstraZeneca had previously pledged not to profit from AZD1222 for the duration of the pandemic, but the company recently decided to give the vaccine a high enough price tag to generate a small profit.
The acquisition of Alexion is weighing on AstraZeneca's bottom line. The company reported a net loss of $1.7 billion during the quarter, compared to a net income of $651 million a year ago. The loss was primarily due to the company having to adjust the value of inventory associated with the deal for Alexion. But that's a temporary problem. AstraZeneca is well-positioned to drive top-line growth and eventually get its earnings back into the black.
The future is bright
The company's best-selling products include cancer drugs Tagrisso, Imfinzi, and Lynparza; diabetes medicine Farxiga, and asthma medicine Symbicort. All continue to grow their sales at a decent clip. For instance, Tagrisso's revenue increased by 8% year over year to $1.2 billion in the third quarter, while sales of Farxiga jumped by 51% year over year to $797 million.
There are plenty of exciting pipeline candidates as well. Recently, the Food and Drug Administration approved Tezspire, a medicine for severe asthma. AstraZeneca developed it with Amgen, and the two entities will share costs and profits related to Tezspire equally. This therapy could reach blockbuster status, turning into yet another growth driver for AstraZeneca.
The portfolio of rare-disease treatments acquired through Alexion includes Soliris and Ultomiris -- the only approved therapies for two blood-related disorders called paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome. And in mid-2020, Alexion management said it expected 10 product launches by 2023.
AstraZeneca's entire pipeline includes more than two dozen ongoing phase 3 studies, which means investors can expect new approvals and label expansions to bolster the company's portfolio. That's the bread and butter for drugmakers like AstraZeneca. A strong lineup, rich pipeline, and solid top-line growth will yield excellent stock performance.
The forward price-to-earnings (P/E) ratio is currently 16.1, which seems a bit high, but not unreasonably so. As of Dec. 1, the average forward P/E ratio of the pharma industry was 13.5. Given its current lineup, AstraZeneca is worth a slight premium over the market.
An initial $75,000 investment needs to record a compound annual growth rate of 13.8% to turn into $1 million in 20 years, and that's assuming no money (including dividends) is added over time to this initial investment.
AstraZeneca seems more than capable of delivering such a performance in the next couple of decades, especially if one opts for dividend reinvestment -- AstraZeneca currently offers a 2.39% dividend yield, which is higher than the S&P 500's 1.30%. In time, the company seems likely to reward shareholders who decide to get on board today and help investors cross the $1 million market by retirement.
