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AstraZeneca’s (LSE: AZN) share price is down 28% from its 3 September 12-month traded high of £133.38. At that point, this made the firm the first in the UK with a market capitalisation of £200bn+.
However, this slide looks to be mainly US tariffs-related rather than a signal of anything untoward at the firm itself. Over the long term, I believe the markets will rebound from the current shock, as they have from all others in the past.
As such, the present market bearishness may be a golden opportunity for me to pick up a terrific stock on the cheap.
I took a deep dive into the business and ran some key numbers to find out if this is true.
How does the core business look?
So far, the UK’s pharmaceutical sector has not been hit by additional US tariffs as had been feared. Firms like AstraZeneca are subject to the baseline 10% levies on most US imports from Britain.
This could change, of course, and additional import charges remain a key risk for the firm, in my view.
Nevertheless, even with these new fees in place, analysts forecast AstraZeneca’s earnings will increase 15.9% each year to end-2027. This is key for me, as it is growth here that powers a firm’s share price higher over the long term.
These projections look solid to me, given the firm’s excellent 2024 results. Revenue rose 21% year on year to $54.073bn (£43.59bn) and core earnings per share jumped 19% to $8.21.
The firm also reiterated its target of delivering $80bn in revenue by 2030.
How does the valuation appear?
In assessing any stock’s price, I begin by comparing its key valuations with those of its competitors.
In AstraZeneca’s case, its price-to-sales ratio of 3.5 is very cheap relative to its peers’ average of 8.8. This group consists of AbbVie at 5.6, Novo Nordisk at 6.2, Pfizer at 8.3, and Eli Lilly at 15.
The same is true of its 27.3 price-to-earnings ratio against the 46.7 average of its competitors.
I ran a discounted cash flow analysis to pinpoint what these undervaluations mean in share price terms.
The DCF for AstraZeneca shows its shares are 59% undervalued at their current £96.44 price.
Therefore, the fair value for them is £235.22, although share prices can go down as well as up.
So will I buy more of the shares?
I am in the later part of my investment cycle – aged 50 – and focus on stocks paying a high yield. These have provided me with a very sizeable passive income for many years. I hope they will continue to do so, enabling me to keep reducing my working commitments.
That said, I have some legacy stocks geared to growth, and very occasionally buy more if I see a gem.
I already hold shares in AstraZeneca as a legacy stock, but will buy more very soon. Its valuation simply looks too cheap for me to pass up right now, given its very strong earnings growth forecasts.
