AstraZeneca’s first quarter revenue was up 8% before currency moves to $15.3bn ($15.0bn expected) with double digit rises in oncology and rare diseases offsetting declines elsewhere.
Gross margin improvement and a cautious approach to costs helped underlying operating profit increase by 12% to $5.4bn.
Cash generation for the quarter weakened a little, reflected by a $0.5bn drop in free cash flow to $2.8bn. Net debt was $25.9bn.
Full-year guidance for mid-to-high single-digit revenue growth and low double-digit underlying earnings per share growth was unchanged.
The shares were up 1.3% in early trading.
Our view
AstraZeneca’s first-quarter results came with further signs of both commercial and clinical delivery. It's on track to meet full-year guidance, but on the day, steady as she goes didn’t get investors too excited.
The group’s diverse geographical and clinical footprint, as well as its focus on research-led innovation, means we think it’s relatively well placed to deal with the political hazards associated with investing in this sector. However, tariffs and pressure to reduce prices remain key risks to call out.
There’s been no change to the targeted $80bn annual revenue and a mid-thirties operating margin by 2030. The revenue ambition is well supported by the depth of the pipeline and the existing portfolio. We also see scope for outperformance. But as Astra scales, it's upping underlying investments in research and sales capabilities, which we believe are the lifeblood of the business.
These investments take time to generate benefits, which could see near-term margins come under pressure. That’s to be expected, but if new drug approvals and launches don’t pan out as hoped, then it risks becoming a long-term problem rather than a short-term timing issue.
Cancer treatments are a cornerstone of Astra's offering. The diverse late-stage pipeline means there are lots of potential shots on goal as it pioneers technologies with the potential to replace existing treatment regimes. Class leadership in multiple medicines, as well as a continuing focus on regulatory approvals this year, means the division is on track for further success in 2026.
Given the pace of research and track record of delivery, the target of marketing over 25 blockbuster drugs by 2030, from 16 today, doesn’t seem overly ambitious. Other areas of focus include autoimmune illnesses, cardiovascular conditions and rare diseases. Astra’s not currently selling any next-generation weight management (GLP1) products, but it’s making strong clinical progress and is a space to watch.
Net debt sits at close to 1x forecasted cash profits, which doesn't look too demanding. Astra’s generating strong cash flows from its existing portfolio of marketed medicines. This helps support a prospective dividend yield of around 1.8%. The continued research drive is keeping a lid on dividend growth but over time there could be scope for payouts to improve. However, no returns are guaranteed.
We’re optimistic about the outlook for this prolific drug developer, and the company’s rich pipeline has the potential to drive better-than-guided profit over the medium term. But we see only modest upside absent an improved earnings outlook. With clinical trials carry a significant risk of failure, investors should also be ready for disappointments.
Environmental, social and governance (ESG) risk
The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, AstraZeneca's overall management of material ESG issues is strong. However, ongoing investigations into employee activities in China should be closely followed. The executive compensation plan included a target to eliminate greenhouse gas emissions by 2025, and the sustainability strategy is overseen by upper management. AstraZeneca has implemented a robust programme to monitor patient safety trends and ensure the quality and efficacy of its products.
Access to healthcare is a key strategic priority. The company has a strong human capital development programme with initiatives to recruit and retain highly specialised employees, highly pertinent following the acquisition of Alexion which adds 2,500 headcount.
AstraZeneca key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.