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Changes in AstraZeneca’s Valuation after Its 2Q17 Earnings

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Sep. 4 2017, Updated 11:38 a.m. ET

AstraZeneca’s valuation

Headquartered in London, AstraZeneca (AZN) is a leading pharmaceutical company with operations in more than 100 countries. The company develops and manufactures drugs for primary care and specialty care.

The chart below shows the revenues and earnings per share (or EPS) for AstraZeneca since 3Q15. AstraZeneca missed Wall Street analysts’ estimates for EPS and revenues. It reported EPS of $0.38 on revenues of $5.05 billion during 2Q17, compared to its EPS estimate of $0.42 on revenues of $5.07 billion.

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Forward PE

PE multiples represent what one share can buy for an equity investor. On August 31, 2017, AstraZeneca (AZN) was trading at a forward PE multiple of ~15.5x, compared to the industry average of 14.4x. Among its competitors, Pfizer (PFE), Merck & Co. (MRK), and Eli Lilly & Co. (LLY) are trading at forward PE multiples of 12.4x, 15.5x, and 18.3x, respectively.

Forward EV-to-EBITDA

On a capital structure–neutral and excess cash–adjusted basis, AstraZeneca currently trades at ~11.1x, which is higher than the industry’s average of ~9.5x. Its competitors Pfizer (PFE), Merck & Co. (MRK), and Eli Lilly & Co. (LLY) are trading at forward EV-to-EBITDA multiples of 10.2x, 11.6x, and 13.7x, respectively.

Analyst recommendations

AstraZeneca’s stock value has fallen ~11.9% over the last 12 months. Wall Street analysts estimate that the stock has the potential to return ~16.6% over the next 12 months. Analysts’ recommendations show a 12-month price target of $34.12 per share compared to the last price of $29.25 per share on August 30, 2017.

Of the three analysts tracking AstraZeneca ADR, two analysts recommend a “buy,” while one of the analysts recommend a “hold.” The consensus rating for AstraZeneca ADR is 1.67, which is a moderate buy for momentum investors.

There are 35 analysts tracking AstraZeneca stock listed on the London Stock Exchange. Of these, 19 analysts recommend a “buy,” 13 analysts recommend a “hold,” and three analysts recommend a “sell.”

To divest company-specific risks, investors can consider ETFs like the Vanguard FTSE Developed Markets ETF (VEA), which holds 0.4% in AstraZeneca Plc. (AZN).

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