Argus Concerned With Near-Term Challenges At AstraZeneca

AstraZeneca plc (ADR) AZN shares are currently trading at a discount to the S&P 500 Pharma companies, which Argus’ Stephen Biggar views as warranted, given the earnings challenges being faced by the company due to its current business transition.

Biggar initiated coverage of the AstraZeneca with a Hold rating.

Current Challenges

While mentioning that AstraZeneca was a “well-managed” company, the analyst noted that two of its top three drugs had lost patent protection over the past three years.

“Management is taking steps to address these losses by cutting costs and assembling a strong new drug pipeline, though the new drugs may not contribute substantially to revenue for several years,” Biggar stated.

The analyst expects the company to face meaningful revenue and earnings pressure at least through 2017.

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Dividend And Earnings

AstraZeneca pays an annual dividend of $1.40, representing a current yield of about 4.7 percent. Biggar believes the dividend is secure, given the company’s robust cash flow.

However, given the challenges being faced by the company at present, Biggar expects the payout to remain unchanged in 2016 and 2017.

The analyst expects the 2016 core EPS at $2.00, down from the $2.13 reported for 2015. Another 10 percent decline is expected in the 2017 EPS to $1.80.

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