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FTSE 100 pharmaceutical giant AstraZeneca (LSE: AZN) has been a reliable performer in recent years. A £1,000 investment in AstraZeneca shares at the start of 2022 would be worth £1,225.
Investors who take a foolish long-term approach have done better. A £1,000 investment five years ago would have been worth a healthy £2,110.
I would like to add some more healthcare exposure to my portfolio. Can AstraZeneca keep climbing or is this high-flyer at risk of a sharp correction?
Good progress
AstraZeneca’s sales growth has accelerated over the past two years. Annual revenue rose to $44 billion in the 12 months to June 30 from $24 billion in 2019.
Of course, this growth was helped by some one-time changes. The $39bn acquisition of US company Alexion in the second half of 2021 added $3bn to revenue. Sales of the Covid-19 vaccine contributed nearly $4bn last year.
However, one of the main attractions for me is that it doesn’t depend on just a few core products. In the year By 2021, the company had 13 blockbuster drugs – with sales of more than $1 billion.
In my view, this difference is the key attraction. Although AstraZeneca has disappointing results with individual drugs, the company as a whole can still deliver reliable profits.
More growth ahead?
Even for a £150bn company like AstraZeneca, the acquisition of Alexion was a big deal. This business is not the only acquisition Alexion has made in recent years.
CEO Pascal Soriot has now launched a $2 billion restructuring program to streamline and consolidate the sprawling business. It expects to achieve incremental cost savings of $1.2 billion before taxes annually by 2025.
Brokerage forecasts suggest that the group’s sales growth will slow during this period. However, City analysts expect AstraZeneca’s profits to increase as costs fall and sales of key drugs grow.
The latest estimates I see suggest the shares could trade at just 13 times forecast earnings in 2024.
Are the shares worth the money?
I am confident that this business will continue to develop successful new drugs and generate income for shareholders.
Based on current forecasts, I think AstraZeneca shares could still be well valued over the long term.
Even so, I wouldn’t buy it at the current price of £100. The reason for this is that I do not believe that the current assessment provides an adequate margin of safety.
As things stand today, AstraZeneca trades at nearly 18 times forecast earnings in 2022 and offers a dividend yield of just 2.5 percent.
If earnings continue to rise in line with forecasts, I think this could be a fair price. But if it upsets the market in any way, I think the shares could fall significantly.
I prefer to invest when the market is already cautious. To buy AstraZeneca, I wanted a share price below £85. That raises the dividend to over 3% and offers a more attractive margin of safety in my view.