Could AstraZeneca’s share price get an earnings boost?

AstraZeneca's [AZN.L] share price reached an all-time high this year, despite taking a tumble in Q1. On its best-ever day of trading, AstraZeneca’s share price reached an intraday high of 10,120p before closing at 9,245p on 20 July — up 25.0% year-to-date. The stock has dropped since, however, and was up just 3.96% year-to-date (through 3 November’s close). The pharmaceutical giant is expected to release its third-quarter earnings report on 5 November, when investors will be looking for strength to boost AstraZeneca’s share price closer to its 2020 peak.

On 16 March, AstraZeneca’s share price had fallen to an intraday low of 5,871p, before closing at 6,171p — down 16.6% year-to-date. This was the stock’s lowest value since June 2019, but it only took a month to start trading above its 2020 opening price of 7,595p.

AstraZeneca’s share price has since made some gains as pharmaceutical and biotech companies wrestle for supremacy in the race for a COVID-19 vaccine, gaining 28% since its March low.

Just a blip?

When AstraZeneca released its second-quarter earnings on 30 July, total revenues grew by 8% year-over-year, or 11% at constant exchange rates (CER), to $6.28bn for the quarter, slightly beating the Zacks Equity Research consensus estimate of $6.25bn. The beat was driven by higher product sales.

Pascal Soriot, CEO of AstraZeneca, highlighted, in particular, the gains made in emerging markets, which saw revenues rise 9% to $4,329m in the first half of the year.

The company was also bullish on its COVID-19 response, pointing to its capacity to deliver more than two billion doses of its vaccine candidate, AZD1222.

The company reported earnings per share of $0.48, beating the Zacks estimate of $0.44. Meanwhile, higher revenues caused core earnings per share to grow 31% year-over-year to $0.96 at CER.

Despite the positive results, investment firm Hargreaves Lansdown suggested that, although the company had made good progress in recent years and could continue to grow in years to come, the company is not yet in “peak condition”. The broker suggested that climbing debt is unsustainable long term.

“With a prospective yield of 2.6% that might be a bit of a disappointment, especially since the need to reduce a sizeable debt pile means significant dividend growth is probably some way off,” Hargreaves Lansdown noted.

“With a prospective yield of 2.6% that might be a bit of a disappointment, especially since the need to reduce a sizeable debt pile means significant dividend growth is probably some way off. However, recent history suggests [AstraZeneca] can make good use of a research and development budget that's running at over £5bn a year and ultimately that's what can drive long-term success.”

“However, recent history suggests [AstraZeneca] can make good use of a research and development budget that's running at over £5bn a year and ultimately that's what can drive long-term success” - Hargreaves Lansdown

Looking to the next report, analysts expect AstraZeneca to post earnings of $0.49 per share, which would represent a decline of 2% year-over-year.

As for revenues, the Zacks consensus estimate suggests the company will have made $6.53bn, which would represent growth of 1.9% from last year.

For the full year, Zacks expects earnings of $2.02 per share and revenues of $26.31bn, which would represent respective growths of 15.4% and 7.9% from 2019.

Potentially attractive valuations

James Gordon, analyst with JPMorgan, reiterated a Buy rating and kept his 9,500p target on AstraZeneca’s share price. According to The Fly, Gordon said that he sees the company reiterating FY20 revenue and core EPS guidance given the uncertainty around a second wave of COVID-19, though he added that guidance could look more conservative after the Q3 update.

Meanwhile, Luisa Hector, analyst at Berenberg, initiated coverage of AstraZeneca with a Buy rating and 10,500p price target. Hector predicted “solid fundamentals and attractive valuations in the global pharma space,” according to The Fly.

The consensus estimate held among the 27 analysts polled by the Financial Times rates the stock an Outperform. This rating comes from a majority of ten, while nine rate the stock a Buy, three a Hold, four an Underperform and one a Sell.

Among 24 analysts offering 12-month price forecasts for the FT, the median target is 9,429.51p, representing an 18.4% increase on AstraZeneca’s share price as of close on 3 November.