Amid macroeconomic turbulence regarding persistent inflation and the increasing threat of a Fed-induced recession, investing in shares of fundamentally strong, time-tested, and profitable businesses with resilient demand and margins, such as AstraZeneca PLC (AZN), could ensure consistent, risk-adjusted returns.

The British-Swedish science-led biopharmaceutical company focuses on discovering, developing, and commercializing prescription medicines in Oncology, Rare Diseases, and Biopharmaceuticals. Its offerings include Cardiovascular, Renal & Metabolism, and Respiratory & Immunology products.

The stock has gained 1.2% over the past month and 6.9% over the past six months to close the last trading session at $64.56.

Let’s closely examine the factors that make it worthy of investment.

Impressive Track Record

Over the past three years, AZN’s revenue and EBITDA increased at 22.1% and 35.6% CAGRs, respectively. During the same time horizon, the company has grown its net income and total assets at 35.1% and 16.3% CAGRs, respectively.

Strong Business Performance

Despite flagging sales of its Covid-19 medicines, AZN’s results for fiscal 2022 have been nothing short of impressive. The company’s total revenue increased 18.5% year-over-year to $44.35 billion, with growth coming from all therapy areas and the addition of Alexion.

AZN’s gross profit for the fiscal year increased 27.9% year-over-year to $31.96 billion, while its EBITDA increased 21.8% year-over-year to $9.24 billion.

As a result, the company’s operating profit came in at $3.76 billion, compared to $1.06 billion in the previous fiscal year. AZN reported a profit after tax of $3.29 billion or $2.12 per share, compared to $115 million or $0.08 per share in the previous fiscal year.

Consistent Return of Capital to Shareholders

AZN’s robust financials and strong performance have enabled it to reward its stockholders with consistent dividend payouts.

On February 9, AZN announced its second interim cash dividend of $1.97 per share, payable on March 27, 2023. This has resulted in a full-year dividend payout of $2.90 per share. This translates to a yield of 4.49% at the current price, better than the 4-year average dividend yield of 2.67%.

Excellent Capital Allocation by Management

AZN’s trailing 12-month gross profit margin of 80.57% is higher than the industry average of 55.5%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 31.33% and 7.41% comfortably exceed the industry averages of 3.56% and negative 7.24%, respectively.

Additionally, AZN’s trailing-12-month ROCE, ROTC, and ROTA of 8.62%, 7.95%, and 3.41% compare favorably to the respective negative industry averages.

Optimistic Analyst Estimates

For fiscal 2023, analysts expect AZN’s revenue to increase 3.4% year-over-year to $45.87 billion. During the same period, the company’s EPS is also expected to increase 39.6% year-over-year to $4.65.

Both revenue and EPS are expected to keep growing over the next two fiscal years.

POWR Ratings Reflect Robustness

AZN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AZN has a B grade for Growth and Sentiment, consistent with its impressive track record and optimistic analyst estimates.

AZN also has a B grade for Quality, consistent with its higher-than-industry profitability. It has a B grade for Stability, as reflected in its mellowed-down beta of 0.19 and the relatively low spread between its 52-week high and low prices of $72.12 and $52.65, respectively.

AZN ranks #9 of 167 stocks in the Medical – Pharmaceuticals industry.

Click here to see the additional POWR Ratings for AZN’s Value and Momentum.

Robust Pipeline and Strategic Acquisitions

As the pandemic enters its fourth year, Covid-19 vaccinations and associated offerings in AZN’s portfolio look to be on course for sunset. However, the company, in the words of its CFO Aradhana Sarin, has “blockbuster” projects in development that are set to make billions of dollars.

With breast cancer and kidney disease among the conditions AZN is looking to tackle with its new drugs, Pascal Soriot, Chief Executive Officer, expressed his optimism while announcing the company’s “plan to initiate more than thirty Phase III trials this year, of which ten have the potential to deliver peak year sales over one billion dollars.”

To that end, on February 24, AZN announced the successful completion of the acquisition of CinCor Pharma, Inc. (CINC), including $500 million cash and marketable securities on its balance sheet, for $1.3 billion upfront.

Since CINC is a clinical-stage biopharmaceutical company focused on developing novel treatments for resistant and uncontrolled hypertension as well as chronic kidney disease, the acquisition bolsters AZN’s cardiorenal pipeline by adding baxdrostat (CIN-107), an aldosterone synthase inhibitor (ASI) for blood pressure lowering in treatment-resistant hypertension, to its cardiorenal portfolio.

CINC’s acquisition closely followed AZN’s January 16 announcement of the completion of the acquisition of Neogene Therapeutics Inc. (Neogene) for an initial payment of $200m. Under the terms of the agreement, AZN will pay up to $120 million in additional contingent milestone-based and non-contingent consideration.

As a global clinical-stage biotechnology company pioneering the discovery, development, and manufacturing of next-generation T-cell receptor therapies (TCR-Ts), Neogene is expected to bolster AZN’s oncology portfolio.

Bottom Line

AZN’s strong fundamentals and robust pipeline have made the company’s management believe they are “on track to deliver industry-leading revenue growth through 2025 and beyond, and have set AstraZeneca on a path to deliver at least fifteen new medicines before the end of the decade.”

All these positives make AZN an attractive sub-$100 investment option for solid risk-adjusted returns.

How Does AstraZeneca PLC (AZN) Stack up Against Its Peers?

In addition to AZN, which has an overall POWR Rating of A, investors could also consider looking at its A-rated industry peers: Novartis AG (NVS), Bristol-Myers Squibb Company (BMY), Takeda Pharmaceutical Company Limited (TAK), all currently trading below $100.

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AZN shares were trading at $64.18 per share on Tuesday afternoon, down $0.38 (-0.59%). Year-to-date, AZN has declined -3.99%, versus a 4.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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