AstraZeneca puts an end to its upgrade reputation
AstraZeneca's fourth quarter results disappoint - the pharma giant fails to upgrade its earnings forecasts
Having hit an intraday high of 2,931p in the morning, the pharmaceutical giant’s shares were 3.5% lower at 2,760p at midday as the market digested what was widely described as a slightly disappointing update.
Core earnings per share for the fourth quarter of 2008 landed at $1.25, ahead of consensus forecasts of $1.22 but the revenue and operating profit numbers disappointed. “Sales are 1% light,” one London-based trader said, adding that there is “quite a big operating profit miss at $1.9 billion versus consensus of $2.2 billion.”
The pharma group announced it will cut a further 7,400 jobs worldwide as part of its restructuring programme, with job reductions totally 15,000 over five years. The cost-cutting plans are hoped to save the company $2.5 billion per year when fully implemented, up from $1.4 billion previously forecast, at a total cost of $2.9 billion. $2.1 billion in savings is expected by the end of 2010 and the balance to be realised by 2013—extra savings that should help it get through the Seroquel-related earnings trough in 2012, according to an industry expert.
Going forward, the company guided for 2009 earnings to be in line with those of 2008 and pointed to core EPS in the range of $5.15-5.45. But this was deemed to be a tad disappointing by market observers. “The EPS guidance is disappointing and the lack of any sales growth forecast for the year is a bit concerning,” a trader remarked.
Analysts at Charles Stanley downgraded their recommendation on the stock to Reduce from Hold following the release, citing weak core EPS guidance and lower-than-expected fourth quarter and full-year numbers.
On the upside, the group moved to raise its dividend by 10% to $2.05 for the full year but with the pharma group having upgraded earnings forecasts for the past three quarters of 2008, the lack of a repeat performance disheartened investors.
“It may be that they’re buying a bit of market share in the US but given the lack of earnings upgrades and the fact the shares are at the top of their range we would understand some profit taking, although the stock still looks pretty reasonable value to me,” an analyst who wished to remain anonymous commented.
AstraZeneca is number two in the UK pharma market, after GlaxoSmithKline, which saw its shares slide 1.2% to 1,241p on the read-across from its peer’s results. Both stocks have enjoyed gains of late as investors sought out defensive plays but today’s falls helped push the FTSE 100 index down 86.37 points to 4,208.83 in mid-session deals.
