AstraZeneca's Q4 Earnings: Recognizing The Underrated Gem's Growth

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AstraZeneca is one of the fastest-growing pharmaceutical companies.On February 8, 2024, the company will publish financial results for the 4th quarter of 2023.From a broader perspective, AstraZeneca's...

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22:21 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4667393-astrazenecas-q4-earnings-recognizing-the-underrated-gems-growth><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>AstraZeneca is one of the fastest-growing pharmaceutical companies.On February 8, 2024, the company will publish financial results for the 4th quarter of 2023.From a broader perspective, AstraZeneca's...</p>\n\n<a href=\"https://seekingalpha.com/article/4667393-astrazenecas-q4-earnings-recognizing-the-underrated-gems-growth\">Source 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fastest-growing pharmaceutical companies.On February 8, 2024, the company will publish financial results for the 4th quarter of 2023.From a broader perspective, AstraZeneca's EPS is expected to continue to grow through 2026.Sales of most of AstraZeneca's cancer blockbusters have continued to grow at a rapid pace in recent years.So, sales of Imfinzi were $1.13 billion in the third quarter of 2023, up 52.8% year-over-year.Maca and Naca AstraZeneca (NASDAQ:AZN) is one of the fast-growing pharmaceutical companies that has played a significant role in saving the lives of COVID-19 patients and is known worldwide for innovative medicines such as Lynparza, Farxiga, and Imfinzi. Thesis Ahead of AstraZeneca's fourth-quarter 2023 financial results next week, its share price continues to fluctuate near an uptrend line, the first sign that traders and investors remain optimistic regarding its business development in 2024. Source: TradingView Despite its relatively low dividend yield, the company continues to delight investors with strong EBITDA growth, rapid label expansion of its key blockbusters, and successful R&D and M&A policies, allowing it to acquire experimental drugs that show promise in the fight against rare disorders, cancer, and cardiorenal diseases. So, on December 26, 2023, AstraZeneca announced the acquisition of Gracell Biotechnologies (GRCL) for up to $1.2 billion. In my assessment, this deal will allow the company to significantly strengthen its cell therapy portfolio, including through GC012F, a product candidate being developed to combat various haematologic malignancies and systemic lupus erythematosus affecting millions of people globally. I'm initiating coverage of AstraZeneca with a \"buy\" rating. Farxiga Continues To Be AstraZeneca's Flagship Product AstraZeneca's pipeline is robust and includes Lokelma, approved by the FDA and EMA for hyperkalemia in adults, and Imfinzi, Lynparza, and Enhertu, used to treat a range of cancers, including non-small cell lung cancer, advanced gastric cancer, biliary tract cancer, prostate cancer, and breast cancer. In my opinion, the most important of its vaccines and drugs is Farxiga (dapagliflozin), which is the first FDA-approved sodium-glucose cotransporter 2 inhibitor to improve glycemic control in adult patients suffering from such common diseases as heart failure and type 2 diabetes. Source: table was made by Author based on AstraZeneca press releases Sales of the company's flagship product were approximately $1.55 billion for the three months ended September 30, 2023, up $453 million from the prior year. Key contributors to the medication's increased demand were a surge in new patients and its approval in China to reduce the risk of cardiovascular death in patients with symptomatic chronic heart failure. Source: graph was made by Author on 10-Qs and 10-Ks In the coming quarters, I expect the trend of increasing sales of Farxiga to continue due to the expansion of the geography of its use and the favorable results of the T2NOW clinical trial published in early October 2023, which assessed its efficacy in lowering A1C levels in children and adolescents suffering from type 2 diabetes. More globally, the company continues to conduct several clinical studies aimed at determining the efficacy of combining dapagliflozin with other molecules to treat patients with liver cirrhosis and chronic kidney disease and potentially minimizing the financial risk of losing Farxiga's exclusivity in some of the regions over the next five years. Source: table was made by Author based on AstraZeneca clinical trials appendix AstraZeneca's Dividend Policy Is Not Its Trump Card Unlike many large pharmaceutical companies, the financial policy promoted by AstraZeneca management is focused more on the rapid expansion of its pipeline of product candidates and less on increasing dividend payouts or aggressively resorting to a share repurchase program. As a result, this is one of the factors for which the company is not a preferred choice for investors seeking high-yield passive income. According to Seeking Alpha, AstraZeneca has been paying dividends for the past 24 years. I expect this trend to continue in the coming years thanks to its growing cash flow, return on equity exceeding 15%, and continued strong demand for its cancer blockbusters. Source: graph was made by Author based on Seeking Alpha The company's dividend yield is 2.2%, underperforming its primary industry peers Merck (MRK), Novartis (NVS), Bristol-Myers Squibb (BMY), and Pfizer (PFE). Source: graph was made by Author based on Seeking Alpha AstraZeneca's Financial Results And Outlook AstraZeneca's revenue for the three months ended September 30, 2023, reaching about $11.49 billion, up 4.6% year-over-year, but missing analysts' consensus estimates by about $40 million. Source: Seeking Alpha The company's product sales growth for the three quarters of 2023 compared to the same period last year was driven by increased demand for its medicines aimed at treating cancer, cardiovascular and metabolic diseases, and chronic obstructive pulmonary disease. In addition, thanks to effective R&D and M&A policies led by Pascal Soriot, AstraZeneca's CEO, and Sharon Barr, Head of Biopharmaceuticals R&D, the company has one of the highest rates of label expansions for its approved medications among Big Pharma. As a result, I believe that this factor will have a favorable impact on AstraZeneca's revenue growth rate not only in the fourth quarter of 2023 but also in subsequent years. Source: graph was made by Author on 10-Qs and 10-Ks For example, sales of Imfinzi (durvalumab), a PD-L1 blocking antibody, were $1.13 billion in the third quarter, up 52.8% year-over-year. This growth is primarily due to increased demand for AstraZeneca's product in treating patients with biliary tract cancer and non-small cell lung cancer, as well as the continued recovery in diagnostic rates following the end of the COVID-19 pandemic. Source: graph was made by Author on 10-Qs and 10-Ks Seeking Alpha offers financial data on Wall Street analysts' expectations for the coming quarters. So, AstraZeneca's revenue for the fourth quarter of 2023 is expected to range from $11.39 billion to $12.27 billion, which is about 6.7% higher than the fourth quarter of 2022. However, the company's price/sales (FWD) is 4.52x, indicating that it is trading at a premium to many of its peers, including Bristol-Myers Squibb, Pfizer, and Roche Holding (OTCQX:RHHBY). At a more global level, AstraZeneca's revenue is projected to grow steadily in the coming years, thanks in part to the diversification and expansion of its drug development pipeline. As a result, its P/S ratio will decline to 3.61x by 2026. Source: Seeking Alpha AstraZeneca's Q3 Non-GAAP EPS was $0.87, beating analysts' consensus estimates by $0.05. Meanwhile, its EPS is expected to be in the range of $0.72 to $0.87 in the fourth quarter of 2023, up 13.5% year-over-year. Source: Seeking Alpha From a broader perspective, AstraZeneca's EPS is expected to continue to grow through 2026. The increase in this financial indicator is accompanied by an anticipated decrease in the Non-GAAP P/E ratio from the current 18.7x to 10.6x. So, even as AstraZeneca's financial metrics are expected to improve, some institutional investors remain conservative about its business prospects. Source: Seeking Alpha It is equally important to discuss AstraZeneca's debt, which, in my assessment, is not a risk to its financial position. So, its net debt amounted to about $24.4 billion at the end of September 2023, having decreased only slightly compared to 2022. On the other hand, due to the company's continued year-over-year EBITDA growth, its net debt/EBITDA ratio continues to move towards 1x in recent years, potentially allowing its management to continue pursuing an aggressive M&A policy aimed at increasing the company's share in the fast-growing rare diseases and cancer therapeutics markets. Source: Seeking Alpha Key Risks To Consider I will highlight two risks that potential investors need to consider to make more informed decisions aimed at reducing possible losses. Decline In Soliris Sales One of the major risks to the company's financial position is the continued decline in demand for Soliris (eculizumab), an anti-C5 monoclonal antibody used to treat a variety of rare diseases. Source: table was made by Author based on Alexion Pharmaceuticals press releases Its sales were $781 million in the third quarter of 2023, down 13.3% from the third quarter of 2022. The main reason for the decline in demand for this medication is AstraZeneca's management strategy aimed at switching patients from Soliris to Ultomiris, since several eculizumab biosimilars are expected to be launched in the next five years. Source: graph was made by Author on 10-Qs and 10-Ks The Impact Of Biden's Inflation Reduction Act On AstraZeneca's Financial Position Government regulation and the Inflation Reduction Act adopted in 2022 may negatively impact AstraZeneca's business. As already noted in my articles about Merck and AbbVie (ABBV), these changes include negotiating with Medicare, introducing discounts on medications covered under Medicare Part B and Part D, and introducing penalties if medicine prices rise quicker than inflation. Source: Kaiser Family Foundation As a result, I continue to believe that the Biden-Harris administration's regulatory moves toward the healthcare sector constrain the desire of financial market participants to raise investments in Big Pharma. Takeaway In my estimation, AstraZeneca is one of the undervalued companies in the healthcare sector, with a rich pipeline of FDA-approved and investigational drugs to treat, including various types of cancer, rare diseases, type 2 diabetes, and cardiovascular diseases. Additionally, the company is trading at a discount to its historical 5-year average P/E ratio, and given its year-over-year solid EBIT growth rate, I'm initiating coverage of AstraZeneca with a 'buy' rating.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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