The Outlook for AstraZeneca Is Positive, But It’s Too Early to Pull the Trigger

The company's profits look set to rise, but AZN stock has been range-bound for five years

AZN stock - The Outlook for AstraZeneca Is Positive, But It’s Too Early to Pull the Trigger

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AstraZeneca’s (NYSE:AZN) profits look poised to resume growing, as a number of the drug company’s new treatments are expected to be approved by regulators. However, its older blockbuster drug, Crestor, is beginning to face competition from generic treatments. While ultimately the new drugs should compensate for the lost Crestor sales, it’s too early to say when the positive outlook will be reflected in AZN stock.

But Wall Street expects the company’s profit growth to accelerate for at least the next three years. If these forecasts hold, and AZN stock can trade consistently above $40 per share, AstraZeneca stock could finally rally.

Good News And Bad News for AstraZeneca stock

AZN stock spiked by over 1.5% on Monday. While no significant news came out on Monday, good news and bad news for the company were reported last week. The good news was that AstraZeneca announced that the FDA had given its asthma treatment. tezepelumab, breakthrough therapy status.  The designation will allow AZN and its partner on the drug, Amgen (NASDAQ:AMGN), to develop the drug more quickly and expedite FDA approval of the treatment.

Researchers believe that tezepelumab, which is injected, will treat a type of severe asthma. In Phase 2b testing, patients who took the drug  suffered significantly fewer asthma attacks than those who were given placebos.

However, the company also received less favorable news regarding its treatment for a form of lupus. That drug, called anifrolumab, failed to meet a primary endpoint in late-stage testing.

New Drugs Expected to Boost AZN’s Bottom Line

Still, despite this setback, AZN’s overall pipeline appears to be robust. This year alone, positive data has been released on AstraZeneca ‘s drugs for ovarian cancer and lung cancer, while the data on another asthma treatment was also upbeat. Meanwhile, U.S. and European Union regulators approved a reformulation of Bydureon, AZN’s diabetes treatment.

Declining sales of a number of AZN’s key older drugs, particularly Crestor, have caused analysts to lower their 2018 profit estimates  for AZN. They expect profits to fall by 21.8% this year. However, the future looks brighter, as analysts predicts that the company’s bottom line will rise meaningfully in 2019.

The company predicts that its new drugs, along with higher emerging market sales, will boost its top line. Forecasts also indicate that it will grow more quickly than its peers such as GlaxoSmithKline (NYSE:GSK), Bristol-Myers Squibb (NYSE:BMY), Pfizer (NYSE:PFE), and Merck (NYSE:MRK).

The new drugs driving AZN’s revenue higher include cardiovascular, renal, and metabolism drugs such as Farxiga and Brilinta. Additionally, the revenue generated by its oncology drugs such as Lynparza and Tagrisso  has risen by large amounts.

Looking at the valuation of AZN stock, the shares’ forward price-earnings ratio stands at 22.5. That is the lowest price-earnings ratio AstraZeneca stock has reached since 2012. However, its average price-earnings ratio over the last four years was 39.4. This spread could indicate that AZN stock will head higher as the company’s new drugs compensate for Crestor’s lower sales.

Wait for AZN Stock to Break Out of Its Range

However, investors should wait for AZN to have more momentum before buying the stock. Although the stock trades close to its all-time highs, it has been range-bound since 2013. Also, since the lows of 2009, the stock has risen by about 152%, while the S&P 500 has increased by over 370% during the same period.

Additionally, investors might like the stock’s 3.7% dividend yield. But the company has not increased its $1.40 per share annual dividend since 2015. Perhaps increases in the company’s profits will enable it to increase its dividend sufficiently to spark a significant rally in AZN stock. Until the shares consistently trade above $40, investors should probably watch and wait.

The Bottom Line on AZN Stock

Investors should wait for a growth catalyst before taking a position in AZN stock. With new drugs and higher emerging markets sales poised to cause AstraZeneca’s profit growth to accelerate, AZN stock should not be hurt by the sharp decline in sales of Crestor.

However, the stock has remained range-bound for years. Also, the dividend has not been increased for some time. Although the drug maker’s bottom line outlook is promising, investors shouldn’t buy the shares until AZN stock can break out of its range.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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