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Changes in AstraZeneca’s Valuation in Fiscal 2016

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AstraZeneca’s fiscal 2016 performance

AstraZeneca (AZN) reported an ~5% decline in its fiscal 2016 revenues at constant exchange rates. It reported revenues of $23.0 billion, compared to ~$23.6 billion in fiscal 2015. However, the EPS (or earnings per share) reported an increase to $4.31 for fiscal 2016, compared to $4.26 for fiscal 2015.

The fundamental factors affecting AstraZeneca’s stock price and valuation include the performance of its growth platforms as well as the exclusivity of blockbuster drugs. Foreign exchange rates play an important role in the company’s profitability and affect its stock price and valuation.

This series covers major factors affecting the company, as well as segment-wise performance of its products to provide a clear understanding of each of these drivers.

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Forward PE

PE (price-to-earnings) multiples represent what one share can buy for an equity investor. On February 27, 2017, AstraZeneca (AZN) was trading at a forward PE multiple of ~15.9x, compared to the industry average of 15.6x.

Over the last five years, AstraZeneca’s PE multiple has ranged from ~6.2x to ~19.5x. AstraZeneca’s valuation multiple has followed the industry’s overall trend in the last five years, except for a part of 2014.

Among AstraZeneca’s competitors, Allergan (AGN), Novartis (NVS), and Sanofi (SNY) are trading at forward PE multiples of 15.0x, 16.0x, and 13.7x, respectively.

Forward EV-to-EBITDA

On a capital structure–neutral and excess cash-adjusted basis, AstraZeneca currently trades at ~11.3x, which is higher than the industry’s average of ~10.3x. Its competitors Allergan, Novartis, and Sanofi are trading at forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiples of 12.9x, 14.9x, and 9.8x, respectively.

Analyst recommendations

On February 27, 2017, AstraZeneca’s stock value rose ~0.6% over the last 12 months. Wall Street analysts estimate that the stock has the potential to return ~15.4% over the next 12 months. Analysts’ recommendations show a 12-month target price of $33.87 per share, compared to its price of $29.35 per share on February 24, 2016.

Of the analysts covering AstraZeneca (AZN), 40% of the analysts recommended a “buy,” while 60% of the analysts recommended a “hold.” Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.

To divest any company-specific risk, investors can consider ETFs like the Vanguard Total International Stock ETF (VXUS), which holds ~0.4% of its total assets in AstraZeneca.

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