U.K.-based AstraZeneca PLC NASDAQ: AZN is up 8.95% in the past month as investors grow optimistic about the company's improved earnings outlook for 2024. Not only are sales of cancer and diabetes drugs growing fast, but the company announced an acquisition in the area of innovative cell therapies.
Pharmaceutical companies are well aware of the need to keep their pipelines filled because even blockbuster drugs don't maintain that high-powered status forever.
As sales of AstraZeneca's Covid treatments waned, the company's revenue declined, but that situation is reversing itself as diabetes and ovarian cancer medications pick up the slack.
The company delivers full-year 2023 results on February 8. Wall Street expects AstraZeneca to earn $2.10 a share for the year, down 37%.
That's partially due to lower sales of Covid medications in early 2023, before sales of other treatments began rising enough to make up the difference.
Bouncing back to earnings growth
Next year, Wall Street anticipates earnings growth to return, with AstraZeneca earning $2.85 a share, an increase of 36%.
In particular, diabetes treatment Farxiga and ovarian cancer medication Lynparza are expected to generate more than $3 billion in revenue.
AstraZeneca had other news that encouraged investors: On December 26, the company said it planned to acquire China-based Gracell Biotechnologies Inc. NASDAQ: GRCL. This clinical-stage biopharmaceutical company develops new cell therapies to treat cancer and autoimmune diseases.
AstraZeneca expects the acquisition will hasten its efforts in the development of cell therapies. It's already established treatments for solid tumors. It expects Gracell's technologies to accelerate its cell therapy treatments for blood cancers.
Investors like what's in the pipeline
Oncology is AstraZeneca's largest business segment, with lung cancer medication Tagrisso being the company's best seller.
It's the pipeline that's getting investors excited, though. For example, the company has a licensing deal with Chinese biotech Eccogene to develop obesity drugs, which are clearly hot products right now.
In addition, AstraZeneca's existing immunotherapy treatment, Imfinzi, is in clinical trials to determine its efficacy as a cancer treatment.
Outperforming wider healthcare industry
Take a look at the AstraZeneca chart: The stock has been etching the right side of a consolidation since early November. That's right around the time that the broader market began rallying, but AstraZeneca has outperformed the Health Care Select Sector SPDR Fund NYSEARCA: XLV on a one-month basis.
Keep in mind: AstraZeneca is not eligible for S&P 500 inclusion, as it's based in the U.K., but the large-cap pharmaceutical sector isn't a bad comparison. AstraZeneca, just like large industry peers including Pfizer Inc. NYSE: PFE, Bristol-Myers Squibb Co. NYSE: BMY and Merck & Co. Inc. NYSE: MRK sells internationally.
Pfizer and AstraZeneca have something in common: Both companies saw their stock prices make significant gains in 2021 on the strength of COVID-19 vaccines. As those sales ebbed, both stocks declined, although Pfizer suffered more.
AstraZeneca analyst forecasts show a consensus view of "moderate buy," but if you dig into the individual ratings, you'll see that the coverage is mixed. On December 18, HSBC initiated coverage with a "buy" rating, but on January 3, Jefferies downgraded the stock to "hold" from "buy."
Shares rose on acquisition news
AstraZeneca shares climbed on news of the Gracell acquisition. That doesn't always happen, as we've seen recently when Synopsys Inc. NASDAQ: SNPS said it would acquire Ansys Inc.
However, in this case, the market applauded the acquisition news, although there have been no upgrades since then.
Within the healthcare sub-industry of pharmaceutical stocks, AstraZeneca has been underperforming several others, including juggernauts Eli Lilly & Co. NYSE: LLY and Novo Nordisk A/S NYSE: NVO, whose revenue and stock prices have been rising on the strength of weight-loss and diabetes drugs.
While AstraZeneca currently lags other pharmaceuticals, the stock could be primed for greater inflows as institutional investors snap up the stock while it's still trading beneath prior highs. The upcoming earnings report could be a catalyst for a move higher. But as with any stock, investors should use caution in the weeks ahead of a report in case bad news sends the price lower.
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