When compared to its international peer group,AstraZeneca (LSE: AZN) looks like a bargain.
Astras primary peers, the likes ofBristol-Myers Squibb,Eli Lilly,Merck,Pfizer,Novartis,RocheandAbbott Laboratories, all trade at an average forward P/E of around 19.9, a full 25% above Astras current forward P/E of 15.9.
City analysts are currently forecasting that Astra will report earnings per share of 275p for 2015. If Astrasvaluation moved in line to that of its peers, the company shares could be worth 5,473p.
However, it will take time of Astras shares to reach this level. A number of catalysts are needed to unlock value at the company and restore investor confidence. Most importantly, Astra will need to prove to the market that it is back on a growth trajectory.
The foundations for growth
Astra is already making progress in its quest to boost growth. Around 33% of the $24.5bn in revenue the company will generate this year will come from three drugs, which Astra is set to lose the exclusive manufacturing rights for by 2017 at the latest.
To fill the revenue hole left by these drugs, Astras management is pinning its hopes on the groups best-in-class pipeline of opportunities, new drugs such asBrilinta, an anti-clotting drug,Durvalumab and AZD9291, all of which are currently moving through various stages of regulatory approval.
City analysts believe that these new blockbuster treatments will produce sales for the group of around $4bn per annum by 2018, which will fill in much of the gap left by drugs coming off patent.
Alongside the launch of new treatments, Astra is also signing deals with other pharma groups as it seeks to exploit as many growth avenues as possible. Indeed, at the beginning of September Astra agreed tolicense its Brodalumab drug for the skin disease psoriasis to CanadasValeant, in return for up to $450m in payments. This deal follows similar deals made earlier in the year.
Some of the assets divested include an experimental dementia drug, which was placed into a partnership withEli Lilly, co-marketing rights for a new constipation pill sold toDaiichi Sankyoof Japan for $200m, all non-US rights for Entocort, a treatment for Crohns disease and a $450m collaboration on immunotherapies withCelgene, one of the biggest names in the US biotech industry.
These externalisationdeals coupled with Astras treatment pipeline of 222 new products should enable the group to hit managements sales target of$45bn by 2023.
Foolish summary
Astra is trading at a discount to its peers due to concerns about the companys growth potential. However, the company is working hard to allay these concerns, and as the market starts to pay attention to Astras progress, the companys share price should stage a recovery. And investors will be paid to wait for this recovery.
At present, Astra supports an attractive dividend yield of 4.4%, and I believe this payout should be here to stay, as it islinked to management compensation.
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Rupert Hargreaves owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.