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AstraZeneca’s share price movement leaves investors confused
Shares in pharmaceutical giant AstraZeneca (AZN) are behaving in a way which may confuse investors. Its share price has been in a falling trend since last summer despite being one of the first companies to develop a successful Covid vaccine, and therefore playing a crucial role in helping to reopen the world economy.
To confuse matters further, more recently its share price has started to pick up just at the point where several countries around the world have suspended the rollout of its Covid vaccine due to concerns about blood clots. In this situation, one might have thought negative headlines around the world would have been bad for its share price.
A 3.5% rise in its shares on 16 March can be explained by comment from investment bank Jefferies which said AstraZeneca’s ‘impressive revenue and profit trajectory is compelling’, lifting its rating to buy from hold.
But how do you explain the fact the share price has fallen by 25% since peaking at £93.20 in July 2020? At the same time, 2022 earnings per share expectations have risen by 4.5% according to data provider Refinitiv.
It’s unlikely that the suspension of its vaccine rollout announced by 12 countries has influenced share price weakness because the company has confirmed it doesn’t expect to make a profit from selling the vaccine, at least during the first phase.
A case can be made that AstraZeneca’s strong performance over the last couple of years had pushed the valuation premium against global peers to an unsustainable level. A period of consolidation was likely.
For example, in July 2020 the shares traded at a 40% valuation premium to global peers and an 80% premium to UK peer GlaxoSmithKline (GSK).
Only two analysts out of 28 that cover the stock have a sell rating on the shares compared with 23 buy recommendations, indicating that AstraZeneca’s superior growth may already be reflected in the price.
Investors and analysts seemed unconvinced about the company’s $39 billion deal to buy US rare diseases firm Alexion in December. There were questions about the rationale for buying growth when the company already boasted sector leading organic growth.
Both the UK Medicines and Healthcare Products Regulatory Agency and the World Health Organisation insist there is no evidence supporting claims that AstraZeneca’s Covid vaccine causes blood clots.
The European Medicines Agency executive director Emer Cooke concurred, saying the agency remains ‘firmly convinced’ that the benefits of the AstraZeneca vaccine outweigh the risk of side-effects.
However, Shore Capital analyst Adam Barker highlighted the crux of the issue, observing that ‘public trust in the vaccines is critical, and so if governments are being perceived as ignoring possible risks associated with vaccination, then uptake could fall and the pandemic could rage on longer than necessary.’