The FTSE's Best Share Just Got Better

Published in Investing on 28 July 2011

If business is so challenging for AstraZeneca, why is it raising forecasts and promising cash back?

If things are going generally badly for a company, but that company simultaneously tells you it is raising its earnings forecasts and promises more cash back, it has to be taken seriously.

Add to that the fact that the company, AstraZeneca (LSE: AZN), is the only company in FTSE 100's top 20 that can also boast a net cash position, and you can see the case for it being the best share in the top UK index.

To go further still, in my own recent simplistic trawl of FTSE 100 companies' price-to-earnings prospects, AstraZeneca came home in seventh place, and it's just one place further down the list on yield.

So what's the problem?

A real stalwart then -- so what's the problem with the UK's second biggest drug-maker?

Well maybe, just maybe, there isn't one. The well-documented "patent cliff" will undoubtedly see the company face increased competition following the expiry of exclusive rights to its treatments around the world, but this is known and in the price.    

But then there are many products in its development pipeline, whilst sales of existing drugs like cholesterol product Crestor and asthma medicine Symbicort are holding up well.

The impending loss of sales of Nexium for heartburn and schizophrenia medicine Seroquel may be offset by recent U.S. Food and Drug Administration approval of the new heart treatment drug Brilinta (which had already been approved in 41 other countries).

Looking up

Meanwhile, Thursday's half-year results saw the company raise its full-year guidance to earnings of  $7.05-$7.35 despite an ordinary second quarter. This places the shares on a P/E of less than seven. A fair old chunk of fear is factored in therefore, though brokers see earnings falling in 2012.

AstraZeneca also says it will buy back more of its own shares, thus magnifying EPS somewhat, following the sale of its dental business Astra Tech. The company estimates that net share repurchases could increase to $5bn in 2011.

Personally, I'd rather receive some cash by way of a special dividend, but either way, it's good news -- and I continue to view AstraZeneca as a high-yielding bargain for a long-term investment. 

More from David Holding:

> Both David and The Motley Fool owns shares in AstraZeneca.

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Comments

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4spiel 28 Jul 2011 , 4:56pm

It is always tempting to chase the more reliable dividend which it is but this company before the economic crisis had an SP of 1900. The outlook is that you might hang on to your current dividend but there is little earnings growth . coming along and so where is real SP price coming from except from grannies and orphans buying it. Shire Pharma is where the growth is and a better long term buy if you are young.

ANuvver 29 Jul 2011 , 1:18am

IMHANNCO, 4spiel is making a growth argument against an income share.

For me, big pharma has stockpiled a lot of acquisition muscle at the moment, which gives it a healthy degree of capital growth upside, on top of income.

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