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Pharmaceutical giant AstraZeneca’s (LSE: AZN) share price is down 18% from its 3 September 12-month high of £133.38. That price made it the UK’s first company to achieve a market capitalisation of £200bn+.
Much of the stock’s price decline since then was caused by uncertainty over US tariffs. The 2 April announcement placed a baseline 10% levy on the UK’s exports to the country. However, US President Donald Trump suggested that he might put a 25% charge on imported pharmaceuticals.
No such charge has yet occurred, but the risk of one still exists.
Another cause of the stock’s decline was uncertainty surrounding ongoing legal investigations into its Chinese operations. These again remain a risk for the firm.
That said, consensus analysts’ forecasts are that AstraZeneca’s earnings will increase by 15.3% a year to end-2027. And it is growth here that is the powerhouse for share price (and dividend) gains over the long term.
How does the business look going forward?
The firm’s Q1 2025 results showed revenue jumping 10% year on year to $13.588bn (£10bn). Earnings per share (EPS) soared 32% to 188 cents over the same period. Revenue is a firm’s total income, while earnings are what remains after expenses have been deducted.
It highlighted five positive Phase III study readouts, which are designed to show if a product benefits a specific population. These included for its key breast-cancer drug Enhertu and lung-cancer drug Imfinzi.
Since then, there have been several further positive treatment announcements. These include the 6 June announcement of the European Union’s approval of Calquence for adults with untreated chronic lymphocytic leukaemia. And 19 May saw positive results for its anti-inflammatory asthma reliever rescue therapy Airsupra.
For 2025, the firm forecasts high single-digit percentage growth and low double-digit growth in EPS. It also projects $80bn in revenue by 2030.
Is there value in the share price?
AstraZeneca’s 4.1 price-to-sales ratio is very undervalued against its competitors’ average of 9.6. These comprise AbbVie at 5.8, Novo Nordisk at 7.2, Pfizer at 11.2, and Eli Lilly at 14.2.
It is also a major bargain on the price-to-earnings ratio, trading at 29.1 versus a peer average of 49.3.
And the same is true of its 15.7 price-to-book ratio compared to the 75.3 average of its competitors.
I ran a discounted cash flow analysis to pinpoint where its price should be, derived from cash flow forecasts for the business.
This shows AstraZeneca’s share price is 39% undervalued at its present £108.97.
Therefore, the fair value for it is technically £178.64.
Will I buy more of the shares?
I have owned shares in the big pharmaceutical firm for many years, as one of my core growth stocks. I even held on to it when I sold many other growth stocks when I turned 50 a while back to focus on dividend shares. This is aimed at maximising my income from these high-yielding stocks.
The principal reason why I kept AstraZeneca – despite only a dividend yield around 2% — was its high earnings potential. I believe this should push its share price – and dividends – much higher over the long term.
My view remains intact, so I will buy more of the shares at their bargain-basement price as soon as possible.
