The right companies can help investors improve their personal balance sheets. That is because businesses that reliably grow sales and earnings become more valuable to financial markets with each passing year.
An investor who put $3,000 into AstraZeneca (AZN 0.19%) five years ago and reinvested dividends would have $6,200 today. The same amount put into the S&P 500 would be worth only $5,200 with dividends reinvested.
But is the stock still a good fit for a growth-oriented portfolio? Let's examine AstraZeneca's fundamentals and valuation to decide.
Delivering robust growth to shareholders
AstraZeneca's $210 billion market capitalization makes it the sixth-biggest drugmaker in the world. Among non-U.S. drugmakers, the company is the second-largest, trailing only Novartis and its $235 billion market value. Supporting this colossal figure, AstraZeneca has 10 drugs on track to generate at least $1 billion each in revenue in 2023, and two more are set to produce at least $5 billion each in annual revenue.
| AstraZeneca's Top-Selling Drugs | First-Half 2023 Sales |
|---|---|
| 1. Tagrisso | $2.92 billion |
| 2. Farxiga | $2.80 billion |
| 3. Imfinzi | $1.98 billion |
| 4. Soliris | $1.65 billion |
| 5. Lynparza | $1.37 billion |
| 6. Ultomiris | $1.36 billion |
| 7. Symbicort | $1.29 billion |
| 8. Calquence | $1.19 billion |
| 9. Fasenra | $744 million |
| 10. Brilinta | $665 million |
| 11. Crestor | $585 million |
| 12. Strensiq | $562 million |
Data source: AstraZeneca.
AstraZeneca's total revenue advanced by 6% year over year during the second quarter, to $11.4 billion. Factoring out the unfavorable foreign currency exchange that the company faced in the quarter, its total revenue would have surged by 9% year over year.
This tremendous top-line growth was driven by the fact that 10 of its top 12 medicines grew their revenue for the quarter (on a constant currency basis). These growth rates ranged from 1% year over year for Symbicort, a therapy for asthma and chronic obstructive pulmonary disease, to 66% for the rare-disease treatment Ultomiris. The total constant currency revenue of the rare-disease drug Soliris dipped 19% year over year during the quarter, which was only because Ultomiris captured some of its sales. The total constant-currency sales of cardiovascular medicine Brilinta fell 3%, which was largely due to the introduction of generic competition in Canada.
AstraZeneca's non-GAAP (adjusted, or core) earnings per share (EPS) soared 25% over the year-ago period to $2.15 in the second quarter. Slower growth in its total expenses helped the company's operating margin to expand considerably for the quarter. This explains how the British drugmaker's core EPS growth outpaced total revenue growth for the quarter.
AstraZeneca's future is also promising. Thanks to the 20%-plus share of revenue it routinely spends on research and development, the company has over 170 projects in its pipeline. As these projects are eventually approved by regulatory authorities and launched, they will drive revenue growth. The company's recent deal with Pfizer to shell out up to $1 billion for its portfolio of early-stage gene therapies for rare diseases will further bolster AstraZeneca's pipeline.
For these reasons, analysts believe the company's core EPS will rise by 13.6% annually for the next five years. For context, that's well above the drug manufacturer industry's average annual earnings growth outlook of 8.5%.
Image source: Getty Images.
AstraZeneca has a market-beating dividend
Considering AstraZeneca's robust growth prospects, you'd think that its dividend wouldn't be too appealing. But with a current dividend yield of 2.1%, the company offers more starting income to shareholders than the S&P 500 index's 1.5% yield.
Given that AstraZeneca's dividend payout ratio will probably clock in below 40% in 2023, another bonus is that this above-average income is safe. This low payout ratio leaves the company with the funds needed for business growth and debt reduction.
AstraZeneca's stock is the total package
Despite its amazing growth profile, AstraZeneca's shares gained just 3% so far in 2023. This underperformance compared to the market year to date could translate into meaningful upside soon, as analysts have an average 12-month price target of $81 -- for a prospective 16% gain from the current $70 share price.
AstraZeneca's forward price-to-earnings (P/E) ratio of 16.3 is relatively cheap in comparison to the drug manufacturer industry's average forward P/E of 13.1. This makes the stock an excellent buy for value investors, growth investors, and income investors.
