In This Article:
Questor is The Telegraph’s stock-picking column, helping you decode the markets and offering insights on where to invest.
AstraZeneca’s (AZN.L) share price has risen by 39pc since our ‘buy’ recommendation in August 2019. In doing so, the FTSE 100’s largest company has beaten the wider index by 23 percentage points. Yet the near-term prospects for the global pharmaceutical firm have not always suggested that capital gains or index outperformance lie ahead.
Indeed, investors have continually worried about a whole host of potential challenges facing the company over recent years. They have included, but are not limited to, the loss of patents on key drugs and a possible change in senior management.
More recently, the company’s first-quarter results have sparked concern. Released at the end of last month, they showed that revenue rose by 10pc versus the prior year. This, though, was slightly behind investor expectations and prompted a sudden 4pc fall in the company’s share price.
In Questor’s view, this was unjustified, given that AstraZeneca’s core earnings per share growth of 21pc was ahead of investor expectations. Moreover, the firm confirmed it is on track to meet full-year financial guidance. It expects to post high single-digit percentage growth in revenue and low double-digit percentage growth in core earnings.
Given the company’s size and maturity, as well as ongoing uncertainty present across the global economy, this represents a hugely upbeat growth outlook. Indeed, the firm remains well placed to capitalise on global demographic trends that, just as they did at the time of our pre-Covid ‘buy’ recommendation, provide a significant long-term growth catalyst for the business.
Notably, the world’s population is forecast to increase from around eight billion people to over ten billion people by the mid-2080s, according to the UN. In addition, the world’s population is expected to continue to age. The number of people aged 60 or over is forecast to rise from one billion in 2020 to 1.4bn in 2030. It is then expected to increase to 2.1bn by 2050, according to the UN.
A growing and ageing population means the incidence of non-communicable diseases, which cannot be passed from one person to another, such as cancer and heart disease, is set to rise. This provides a growing market for pharmaceutical firms such as AstraZeneca, which continues to invest heavily in its pipeline of new drugs in these areas.
In the first quarter, for example, the firm’s research and development (R&D) spending rose by 16pc, with it amounting to 23pc of total sales. Although higher R&D spending does not guarantee success in developing new treatments, it increases the chances of the company unearthing blockbuster drugs that can have a significant impact on its financial performance over the long run. This should boost the prospects of the firm reaching its target of generating $80bn in annual revenue by 2030, which equates to annualised growth of roughly 7pc.