The financial performance of AstraZeneca plc (LON:AZN) (AZN.L) has been extremely disappointing in recent years. Its EPS growth has been negative on a fairly consistent basis as the loss of patents on blockbuster drugs has led to generic competition. As a result, the company has suffered significantly from not having a strong pipeline of new drugs to fill the void in sales caused by generic competition.
After a period of intense investment in its pipeline, though, the company now seems to be heading for improved performance according to market expectations. It is due to post a rise in EPS of 13% in the next financial year. This would be its first meaningful EPS growth in a number of years, and could mean that the company experiences improving investor sentiment in my view.
Alongside this, I believe that AstraZeneca continues to have defensive investing appeal. Its business model appears to be less correlated to the wider economy than is the case for many of its sector peers. At a time when many investors are seeking to become more focused on assets which are less cyclical due to potential weakness for the world economy, I feel that the stock could become more popular and this could drive its share price higher.
The income potential of AstraZeneca may also be relatively appealing. It has a dividend yield of around 3.6% at the moment. EPS growth in future years could help to boost this figure in my opinion, while a PEG ratio of around 1.6 suggests to me that it may offer a margin of safety at the moment.
Therefore, with a low valuation in my eyes, improving EPS growth prospects and defensive characteristics, I’m optimistic about the investment prospects of the pharma stock. I think it has the potential to outperform the FTSE 100 after a tough period for the business.