Dividend-paying biotech stocks, particularly those like AstraZeneca (AZN), provide investors with passive income as well as the possibility of capital appreciation.
A titan in the global healthcare industry, U.K.-based AstraZeneca has established itself as a key player in the race for medical breakthroughs, boasting a diverse portfolio of innovative medicines. The stock has soared 110% in the last 10 years, driven by its triumphs in medical science.
Valued at $235 billion by market cap, AZN stock is up 12.2% year-to-date, compared to the S&P 500’s ($SPX) gain of 7.2%.
One of AstraZeneca's most notable achievements in recent years has been its collaboration with the University of Oxford on the development of the COVID-19 vaccine. However, the company is having some legal issues with that vaccine, which was sold in India under the brand name Covishield.
The company admitted before the High Court of Justice in London, UK, that its COVID vaccine "can, in very rare cases, cause TTS (Thrombosis with Thrombocytopenia Syndrome)." TTS leads to blood clots and a low platelet count. We cannot predict now how these challenges will harm the company going forward.
Despite these setbacks, AstraZeneca remains a top dividend and growth stock to buy now. Let’s find out more.
AstraZeneca Owns a Robust Portfolio
Beyond vaccines, AstraZeneca has a robust pipeline of drugs targeting a wide range of diseases, including cancer, cardiovascular disorders, respiratory illnesses, and more.
Recently, the company announced a stellar first quarter of fiscal 2024, exceeding revenue and earnings expectations. In Q1, total revenue increased 17% year on year to $12.6 billion, driven by double-digit growth in product sales, alliance sales from partnered medicines, and collaboration revenue. Furthermore, core earnings per share (EPS) increased 7% from the year-ago quarter.
Cancer remains one of the most serious threats to public health worldwide, and AstraZeneca has emerged as a key player in the fight against this lethal disease. The company's oncology portfolio includes targeted therapies and immunotherapies aimed at treating a variety of cancers, including lung, breast, ovarian, and prostate cancer. In Q1, oncology revenue increased by 23%, accounting for 40% of overall revenue.
Three of its cancer drugs — Tagrisso, Imfinzi, and Calquence — added $3.4 billion combined to total revenue for the quarter. Additionally, Symbicort (for the treatment of asthma and chronic obstructive pulmonary disease) contributed $769 million to total revenue in the first quarter.
Furthermore, AstraZeneca's cardiovascular and metabolic portfolio has also gained significant traction. Farxiga, used to treat Type 2 diabetes, heart failure, and chronic kidney disease, generated $1.9 billion in sales during the quarter. Brilinta, an oral antiplatelet agent used to prevent strokes and heart attacks in patients with acute coronary syndrome, earned $323 million.
The company's pipeline includes 182 projects. A few of these could become another source of revenue for the company in the next few years. Nonetheless, for now, its current pipeline of highly successful drugs is enough to drive revenue growth for many years to come.
AstraZeneca has a dividend yield of 2.6%, which is higher than the S&P 500's average dividend yield of 1.35%. Its forward payout ratio of 42.18% indicates that the current dividend payments are sustainable and there is room for further growth. Recently, the company announced a 7% increase in its annual dividend.
Management reaffirmed its fiscal 2024 guidance, citing a strong quarterly performance. It forecasts both revenue and core EPS in the low double-digit to low teens percentage range. In fiscal 2024, analysts predict revenue and earnings increases of 11.7% and 12.2%, respectively.
What Does Wall Street Say About AZN Stock?
Following the company's first-quarter results, Leerink Partners analyst Andrew Berens reaffirmed his "buy" rating and set a price target of $78. Berens is impressed by the robust growth of Astra's product portfolio in all major markets. Furthermore, Berens noted that the company has reaffirmed its 2024 outlook, which indicates a stable growth trajectory. BMO Capital took a similar stance, setting a price target of $80.
In the analyst community overall, AstraZeneca stock is a “strong buy.” Out of the 11 analysts covering the stock, eight rate it a “strong buy,” one recommends a “moderate buy,” and two rate it a “hold.”
The average target price for the stock is $80.96, which is 7.6% above current levels. The high target price of $91.7 implies a potential upside of 21.3% over the next 12 months.
The Bottom Line on AstraZeneca Stock
AstraZeneca's track record of innovation, combined with its diverse drug portfolio, suggests significant long-term growth potential. Furthermore, with an aging global population and rising demand for healthcare services, the pharmaceutical industry as a whole is set for continued growth.
However, biotech stocks are subject to risks - such as regulatory challenges, patent expirations, and unforeseen safety issues - all of which can have an impact on the company's financial performance and share price.
Given the risks and rewards, AstraZeneca stock is an appealing addition to a well-diversified investment portfolio.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
