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AstraZeneca PLC Stock Appears To Be Fairly Valued

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GF Value
Jun 06, 2021
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The stock of AstraZeneca PLC (NAS:AZN, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $56.8 per share and the market cap of $149.2 billion, AstraZeneca PLC stock gives every indication of being fairly valued. GF Value for AstraZeneca PLC is shown in the chart below.


Because AstraZeneca PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.5% over the past three years and is estimated to grow 11.74% annually over the next three to five years.

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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. AstraZeneca PLC has a cash-to-debt ratio of 0.39, which is worse than 70% of the companies in Drug Manufacturers industry. GuruFocus ranks the overall financial strength of AstraZeneca PLC at 4 out of 10, which indicates that the financial strength of AstraZeneca PLC is poor. This is the debt and cash of AstraZeneca PLC over the past years:


Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. AstraZeneca PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.6 billion and earnings of $1.515 a share. Its operating margin is 15.12%, which ranks better than 73% of the companies in Drug Manufacturers industry. Overall, the profitability of AstraZeneca PLC is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of AstraZeneca PLC over the past years:


Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of AstraZeneca PLC is 4.5%, which ranks in the middle range of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is 6.6%, which ranks in the middle range of the companies in Drug Manufacturers industry.

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 6.83, and its cost of capital is 2.54. The historical ROIC vs WACC comparison of AstraZeneca PLC is shown below:


In short, AstraZeneca PLC (NAS:AZN, 30-year Financials) stock shows every sign of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Drug Manufacturers industry. To learn more about AstraZeneca PLC stock, you can check out its 30-year Financials here.

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