FTSE 100 stocks have faced a downturn in recent months. Indeed, year-to-date, the Footsie has sunk over 5%, as inflationary fears have caused many problems among UK companies. That said, it’s vrtually flat over 12 months.

Fears of a recession have also depressed investor sentiment, especially because this may lead to profit downgrades. However, the FTSE 100 has still outperformed other global indexes, such as the S&P 500 and the Nasdaq. Year-to-date, the S&P 500 has dipped 20% (and almost 11% in a year), while the Nasdaq has fallen 22% (and 18% in a year).

This outperformance has been driven by a few individual companies that are performing well, such as oil giants BP and Shell. But one of the top-performing FTSE 100 stocks is pharmaceutical giant AstraZeneca (LSE: AZN), which has climbed 30% year-to-date and 27% in the past year. It has now reached its all-time high, despite wider market volatility. 

Trading update

The recent Q1 AstraZeneca trading update was extremely strong. Total revenues increased 60% to $11.4bn, aided by the contribution of the company’s acquisitions, as well as plenty of organic growth. Core earnings per share were also able to increase to $1.89, which was 20% higher at a constant exchange rate.

There were some negatives from the trading update, however. This included the multitude of costs arising from the recent acquisition of Alexion, including a $1.2bn charge resulting from revaluing Alexion’s inventory. Research and development costs also increased by 36% year-on-year. This meant that reported earnings per share, which includes all these costs, declined 73% year-on-year to $0.25. This may be a risk moving forwards. 

However, I’m not overly worried about these additional costs. In fact, for FY22, the group expects total revenues to increase by a “high teens percentage”. Core earnings per share are also expected to increase by a “mid-to-high twenties percentage”. These strong signs of growth offset my fears about the rising costs. 

A focus on acquisitions

AstraZeneca has focused on making several acquisitions in recent months to fuel growth. While this has resulted in major acquisition costs and net debt reaching over $25bn, I believe the positives outweigh the negatives. For example, the firm’s $39bn acquisition of Alexion brings many rare diseases treatments into the AstraZeneca fold. This is likely to boost revenues significantly.

It also recently took over TeneoTwo in a $1.27bn deal, to strengthen the group’s oncology portfolio. At the heart of this deal is TeneoTwo’s experimental treatment for lymphoma. If this drug can take off, AstraZeneca’s revenues and profits may be boosted even further. 

What am I doing with this FTSE 100 stock?

With 177 projects in the development pipeline as of the end of 2021, AstraZeneca is one of the most promising pharma stocks moving forwards. It has also seen many positive trials for its new breast cancer drug Enhertu, which has apparently reduced the risk of the disease by 50%. This is another factor that could boost the FTSE 100 stock in the near future. 

For these reasons, I feel that the recent surge in the AstraZeneca share price is justified. Due to its immense potential moving forwards, I am tempted to open a small position for my portfolio. 

The post A soaring FTSE 100 stock to buy at its all-time high appeared first on The Twelfth Magpie.

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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The drinks giant 

In the past five years, the Diageo share price has risen an astounding 80%. This can be compared to the broader FTSE 100 return of just over 7%. This outperformance has been driven by the company’s record of shrewd acquisitions, which has helped boost profits over the years. As a result of the rising profits, Diageo’s dividend and share buyback programmes have also increased, benefiting shareholders. 

Things are going well at the moment, and Diageo is near its all-time high, sitting at just below 4,000p. This is partly due to recent strong half-year results, with operating profits increasing 22.5% to £2.7bn. Operating margins also increased by 190 basis points, demonstrating that the firm has dealt well with inflationary pressures. There is hope that profits can continue to increase too. 

There are some risks, however. For example, the Russia-Ukraine conflict has meant that the group has paused exports to Russia and the Russian division has suspended manufacturing its beers. Although Diageo’s business in Russia contributes less than 1% of operating profits in the half-year results, this is still not good news.

Further, a price-to-earnings ratio of over 20, which is now larger than ‘growth stocks’ Netflix and Meta, demonstrates that further growth is expected. This means that any slip-up will be heavily punished. 

Despite these risks, I still feel that Diageo can continue to outperform the FTSE 100, albeit to a lesser extent than in the past five years. This is due to its excellent quality. Therefore, I’m not selling the Diageo shares in my portfolio. 

The second-largest FTSE 100 stock

After rising over 130% in the past five years, AstraZeneca (LSE: AZN) has established itself as the second-largest FTSE 100 stock, trailing only Shell. This has been achieved from a history of rising revenues and profits.

Recent developments have also been positive. For example, in the latest full-year trading update, revenues were able to increase 41% year-on-year to over $37bn, and core earnings per share increased from $4.02 to $5.29. Reported EPS was far lower ($0.08), due to the acquisition of Alexion and restructuring charges during the year. As these are short term, this is not overly worrying to me, however.  

Alongside these results, AZN also announced that five of its medicines were “crossing blockbuster thresholds”, showing industry-leading research and development productivity. The drugs Evisheld and Tezspire also received approval, giving hope to the company for 2022. 

There are a few problems, however. Firstly, revenues from its vaccine are starting to diminish. This means that revenue growth is likely to be far slower from now. Secondly, AZN also trades at a price-to-earnings ratio of over 20, meaning that growth is expected. Pharma is a very volatile industry, so I’m not convinced the company can live up to expectations. Therefore, this is a FTSE 100 stock I won’t be buying just yet, due to its expensive valuation. 

The post 2 top FTSE 100 stocks that are outperforming the market appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Diageo. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A new Covid-19 vaccine from AstraZeneca

The trial results were positive, but the AstraZeneca share price barely moved on the news. The muted response is likely attributable to the company’s ‘no profit’ policy for its vaccine launch. The vaccine, AZD1222, was tested using two separate dosing regimens.

The first dosing regimen consisted of a half then full dose one month apart and showed a 90% efficacy. Patients in the second dosing regimen received two full doses one month apart and showed a 62% efficacy. The combined results showed a 70% overall effectiveness.

While this would be considered a breakthrough a few months ago, in comparison to the 95% efficacy of Pfizer’s and Moderna’s vaccines, AZD1222 appears underwhelming. However, it has a distinct advantage over both.

The vaccines from Pfizer and Moderna require cold storage conditions of -70°C, and -20°C, respectively. AstraZeneca’s vaccine can be stored for up to six months at a temperature of 2°C–8°C.

Maintaining sub-freezing temperatures in transit is a complicated and expensive process, making the availability of the vaccine in poorer nations minimal. By not requiring less demanding storage temperatures, AZD1222 may prove to be the most viable vaccine candidate for mass distribution.

A biotech stock opportunity

The vaccine was developed and manufactured with help from Oxford Biomedica (LSE:OXB) as part of a supply agreement signed in September. I’ve discussed the biotech stock in previous articles. As a quick reminder, Oxford Biomedica is a gene and cell therapy group. It offers a proprietary platform, LentiVector, that allows pharmaceutical companies to develop new drugs at a significantly reduced cost.

The supply agreement is active for 18 months. The biotech company is responsible for the manufacturing of AZD1222 until the end of 2021 unless the contract is extended.

Initially, the firm received an upfront payment of £15m from AstraZeneca. It expects to generate an estimated £35m from this contract alone by the end of 2021. This represents a huge growth opportunity for the company. The combined £50m revenue represents nearly 80% of the total revenue achieved in 2019 pre-Covid-19.

With this added boost and the continual growth of its LentiVector platform, I’ve forecasted total revenue for 2021 to be in the £100m–£120m range – almost double what it is today.

However, it is essential to remember that this additional revenue is only temporary and may cease to exist after 2021. Still, it does grant a significant boost in available capital for the business to reinvest and increase the value of its platform for its clients.

The bottom line

AstraZeneca’s noble non-profit stance is a social victory. However, Oxford Biomedica is the real financial beneficiary of AZD1222’s successful trials. The Covid-19 vaccine still requires regulatory approval, but AstraZeneca has already begun the filing process with multiple regulatory bodies around the world.

The post Covid-19 vaccine: 1 biotech stock that profits from AstraZeneca’s success appeared first on The Twelfth Magpie.

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• Just above £6 today, here’s where this deeply undervalued FTSE biotech star ‘should’ be trading right now
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Zaven Boyrazian owns shares in Oxford Biomedica. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The rich AstraZeneca share price

As a quick reminder, AstraZeneca is a pharmaceutical company. Through extensive research and development, it discovers, develops, and sells a wide range of drugs, focusing primarily on immunology and oncology.

In 2020, much like many other pharma giants, the firm has been pursuing a Covid-19 vaccine. This is likely a contributing factor to the rich valuation. However, management has committed to a non-profit vaccine launch. Therefore it’s unclear as to how much value the vaccine will actually add.

But there’s more to AZN than just a Covid vaccine. In the latest earnings report, the business appeared to be doing exceptionally well, despite the pandemic. Total revenue was up 10%, primarily driven by new medicines.

Seeing revenue originating from new drugs is an excellent sign. On average, it costs around $1.3bn to bring a medicine to market – an expensive investment that doesn’t always pay off. As of October, an additional $2.6bn in revenue has originated from new products this year.

The portfolio continues to expand, with four new regulatory approvals in 2020, a further six submissions yet to be reviewed, and four more drugs in phase-three trials.

The potential revenue from these new drugs, in combination with continued growth in older segments around the world, has analysts predicting $30bn total revenues at the end of 2021. Assuming the company maintains its most recent 19% operating profit margin, this forecast would lead to an estimated $5.7bn in profits (before taxes).

Based on today’s share price, that would put the forecast pre-tax P/E ratio at approximately 26 times (adjusting for exchange rates).

This certainly makes the current AstraZeneca share price more palatable, but only if it can meet shareholder expectations.

A problem with financials

The immense cost of drug development requires continual funding that the firm’s cash flow hasn’t been able to cover.

As such, AstraZeneca is heavily reliant on debt financing. Debt currently represents 58% of the capital structure which adds additional pressure. However, this level of debt is quite common in the industry and not what I’m concerned about.

My concerns surround the dividend policy. The stock has consistently paid out more in dividends than it makes in profits, using reserves and debt to make up the difference. This behaviour is unsustainable and is likely the primary reason why dividends have been cut numerous times in the past.

The bottom line

Overall, I think the business is doing very well and will continue to thrive in the future. The new drugs entering the market present many opportunities to grow. Also, operations continued to be streamlined, eliminating expenses leading to higher margins.

However, based on current and predicted performance, I believe the share price is simply too high.

The post The AstraZeneca share price nears its all-time high! Here’s what I’d do now appeared first on The Twelfth Magpie.

More reading

• Down 14% to below £135, here’s where AstraZeneca’s deeply undervalued share price ‘should’ be trading today
• The top 3 FTSE shares for beginner investors to consider buying in 2026
• 2 FTSE shares for beginners starting an ISA
• 3 UK shares to consider holding in a Stocks and Shares ISA for a decade

Zaven Boyrazian does not own shares in AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.