AstraZeneca plc (LON:AZN) (AZN.L) has released first quarter results today which show a fall in total revenue of 9% at constant exchange rates. Product sales were down 2%, with a strong performance from China and newer medicines across all therapy areas being offset by the decline of Crestor sales in Europe and Japan.
The company’s cost discipline has remained tight. Reported operating expenses were down by 5%, while core R&D costs declined by 12%. The business remains on track to deliver on its guidance for the full year.
AstraZeneca was able to deliver strong results for Lynparza, Tagrisso and Imfinzi in Oncology, Brilinta and Farxiga in CVRM and a successful launch of Fasenra in Respiratory. And although Crestor sales have continued to decline, the effects of this in Europe and Japan are expected to reduce materially in the second half of the year.
The company remains upbeat about the prospects for its pipeline. It is on track to return to growth in 2018, with double-digit EPS growth being forecast by the market. In spite of this, the stock has a PEG ratio of around 1.6. This suggests to me that it may be undervalued.
Clearly, it has been a difficult period for the company in recent years. The loss of patents has had a material effect on its financial performance, with it still being felt in the first quarter of this year. Investor sentiment has remained surprisingly robust in my view, which suggests that investors may have bought into the turnaround potential of the stock.
In my opinion, AstraZeneca’s share price could generate impressive capital gains over the medium term. I feel that it is making progress in becoming more efficient, and sales growth could be ahead over the coming years. Therefore, alongside what seems to be a relatively stable balance sheet and cash flow, it remains a stock I am upbeat about over a long-term timeframe.