What's on Deck for AstraZeneca?

AstraZeneca (NYSE:AZN) is like a cougar sitting at the top of a mountain (of cash), waiting to strike. If the lean, mean machine acts swiftly and intelligently, investors could be feasting on decent gains.

The company's third-quarter sales weren't all that impressive, however. Sales were up 9%, but much of that was because of currency changes; on a constant basis, sales were up just 3%. AstraZeneca is facing a huge sales growth headwind in the form of generic competition. Sales of heartburn medication Prilosec were down 15% year over year at constant currencies as the over-the-counter drug met with new generic competition. The generics could also be indirectly affecting sales of its prescription drug Nexium, which only grew year over year because of the change in currency. Sales of beta blocker Toprol-XL also came crashing down, thanks to generic competition.

But there were some bright spots for AstraZeneca. Most impressive were sales of cholesterol-lowering drug Crestor, which jumped 28% at constant currencies in a quarter when Pfizer's (NYSE:PFE) Lipitor couldn't manage to stay above water. Crestor may be getting some benefit from the troubles that Merck (NYSE:MRK) and Schering-Plough (NYSE:SGP) have had with Vytorin and Zetia, but it's probably also benefiting because AstraZeneca can now claim that Crestor slows the progression of atherosclerosis -- hardening of the arteries.

While sales weren't outstanding, the bottom line certainly was, because the company cut costs, and its adjusted earnings per share, excluding restructuring and acquisition charges, rose 20% on a constant-currency basis. While AstraZeneca can't cut its way to higher earnings forever, the cuts are helping the company throw off a lot of cash right now -- $5.2 billion in free cash flow for the first nine months of the year.

That cash should come in handy as some developmental-stage drugmakers struggle with the credit crunch and a slumping stock market. Like fellow British drugmaker GlaxoSmithKline (NYSE:GSK), AstraZeneca has said it's interested in picking up some compounds for its pipeline, and it has even stopped its share buybacks to conserve money for the purchases.

With the drugs and pipeline it has now, AstraZeneca isn't really poised for substantial growth, but with the right move -- please, no more MedImmune mega-buyouts -- the company could get back to growing. With the company trading at a P/E of just 9.5, the downside risk doesn't look too bad, and the stock could soar if AstraZeneca makes the right moves.