AstraZeneca may be lacking both drugs and a CEO, but for brave investors this might be the time to buy the stock.
That, at least, is the view of some industry analysts, who argue the shares have little downside after last week's dismal first-quarter results and the surprise early retirement of Chief Executive David Brennan from June 1.
Jefferies on Monday upgraded the stock to "buy" from "hold" while JP Morgan raised the Anglo-Swedish group to "neutral" from "underweight". Both brokerages highlighted AstraZeneca's fat dividend.
With a yield of more than 6.5 percent — the highest of any Big Pharma company — the dividend has been a key prop for AstraZeneca as it grapples with a "cliff" of patent expiries, while having few new drugs to replace those losing protection.
Under Brennan, AstraZeneca eschewed large "transformational" acquisitions that might put the dividend at risk, so the question now is whether a new CEO would change that policy by embarking on a buying spree that could threaten payouts.
Suggested potential targets include niche biotech firm Amylin or larger specialist drugmaker Forest Laboratories. But analysts at Liberum Capital believe AstraZeneca could still acquire the latter for around $10 billion without disrupting expected cash returns.
Bigger buys like Shire, for around $30 billion, or AbbVie, the pharma unit that will soon be spun out of Abbott Laboratories, for some $50 billion, would be another matter, although such large deals would be at odds with the current trend among major drugmakers to focus on bolt-on deals.
DIVIDEND COMMITMENT "ABSOLUTE"
Indeed, Britain's second-biggest drugmaker has already started to do more small-scale acquisitions and licensing deals to bring in promising new drugs from other companies in a drive led by research head Martin Mackay.
A key criticism of Brennan was his failure to drive the process earlier.
Simon Lowth, the finance chief who will act as interim CEO while a full-time replacement is found, says the first priority is to strengthen the pipeline, to offset the patent threat to drugs like Seroquel, for schizophrenia and bipolar disorder, and Nexium, for acid reflux.
But he also stressed to analysts in a call last week: "Our commitment to the progressive dividend policy remains absolute."
The current low valuation of AstraZeneca, with the stock trading at just seven times this year's expected earnings, and the potential for change under a new CEO has already whetted the interest of some previously sceptical investors.
Stephanie Maher, a fund manager at AGF International Advisors, which sold its AstraZeneca holding around three months ago, told Reuters on April 26 she would actively start looking again at the stock, which fell some 6 percent on last week's news.
Any strategy change, however, is likely to take time to emerge. AstraZeneca says its board, under new chairman Leif Johansson, will carry out its annual strategy review over the summer.
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