AstraZeneca PLC (AZN, Financial) experienced a daily loss of -3.52%, with a 3-month decrease of -10.16%. Despite this, the company has managed to maintain an Earnings Per Share (EPS) of 1.98. Is the stock modestly undervalued? The following analysis aims to answer this question, taking into account the company's financial strength, profitability, growth, and more.
Company Introduction
AstraZeneca PLC, a merger between Astra of Sweden and Zeneca Group of the United Kingdom in 1999, sells branded drugs across several major therapeutic classes. With the majority of sales coming from international markets and the United States representing close to one-third of its sales, the company has a significant global presence. Despite a current stock price of $65.82, the estimated fair value (GF Value) stands at $75.74, suggesting that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GF Value calculation, AstraZeneca PLC (AZN, Financial) is estimated to be modestly undervalued. With a current price of $65.82 per share and a market cap of $202.30 billion, AstraZeneca PLC's stock is estimated to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. AstraZeneca PLC has a cash-to-debt ratio of 0.2, which ranks worse than 76.15% of 1048 companies in the Drug Manufacturers industry. Based on this, GuruFocus ranks AstraZeneca PLC's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. AstraZeneca PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $44.50 billion and Earnings Per Share (EPS) of $1.98. Its operating margin is 14.53%, which ranks better than 72.95% of 1035 companies in the Drug Manufacturers industry. Overall, the profitability of AstraZeneca PLC is ranked 8 out of 10, which indicates strong profitability.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of AstraZeneca PLC is 17.7%, which ranks better than 80.96% of 914 companies in the Drug Manufacturers industry. However, the 3-year average EBITDA growth rate is 6.7%, which ranks worse than 55.73% of 881 companies in the Drug Manufacturers industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, AstraZeneca PLC's return on invested capital is 8.13, and its cost of capital is 5.3.
Conclusion
In summary, the stock of AstraZeneca PLC (AZN, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 55.73% of 881 companies in the Drug Manufacturers industry. To learn more about AstraZeneca PLC stock, you can check out its 30-Year Financials here.
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