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AstraZeneca (LSE: AZN) shares have rebounded well after their 25% fall in March 2021. This came after the share price hit all-time highs in mid-2020. Despite the 22% increase in the last six months, at 8,565p, AstraZeneca shares are down 2.2% in the last week. I think this drop offers an excellent buying opportunity for my long-term portfolio.  

Pharma giant

The pharmaceutical company gained a lot of prominence during the pandemic after pricing its Covid-19 vaccine considerably lower than competitors like Pfizer and Moderna. Its efforts alongside oxford University to rollout the vaccine is a success story. But I think the larger picture lies in the steady growth the company has made since 2012. Historically, the company focusses R&D in oncology, cardiovascular, metabolic, and respiratory disease, and not on vaccines.

Its recent 2021 half-yearly (H1) report suggests to me that AstraZeneca is reaping the rewards of these R&D efforts. Growing at an annual rate of 5.9% since 2017, the £130bn industry leader looks like an attractive defensive option for steady returns for my long-term portfolio.

Focus on the future

The company has been making big strides in the research of cancer treatments and immune support medications. As visible in the H1 results, total revenue was up 18% at $15.5bn with a second-quarter growth of 25%. As a result, operating profits in H1 2021 was up 20% to $3.02bn. But, this growth is not just a result of the boost in sales from the Covid-19 vaccine. This is evident when I look at the earnings per share figures, which stand at $2.53 of which just $0.04 was from vaccine sales.

Revenue from oncology and cardiovascular, renal, & metabolism (CVRM) grew 15% and 16% respectively. These divisions served as the largest revenue streams for the company despite the increase in vaccine sales.    

A sizeable portion of sales also come from emerging markets and newly approved medicines under the AstraZeneca label. Emerging market sales grew 21% in H1 2021 with a 28% jump in cardiovascular and renal care treatments. Over the last three years, more than half of the top-selling items in the company were newly developed medicines.

AstraZeneca share price concerns

The pharma company’s shares come with some concerns. New drugs and medical patents have a shelf-life. Mass-produced, generic alternatives eventually find a way into the market, which could cause a drop-off in sales.

The current forward price-to-earnings (P/E) multiple of 40.9 and PE/growth (PEG) ratio of 1.42 suggests inflated valuations. But, factoring in the projected growth figures of 2022 of 28% could bring down the PEG value below one. Moving averages also suggest a jump in share prices in the short term.

Subsequently, analysts expect 2020’s cash-in-hand of $3.9bn to rise to $7.7bn by 2022. The company supports a progressive dividend policy and the current yield of 2.36% could double in the future.

Factoring in projected growth and the pandemic-driven all-time high of 9,187p, I think AstraZeneca’s shares could break through this ceiling in the next 12 months. Of course, all this is predicated on revenue meeting forecasted levels. But, I think the company is well-set to achieve targets.

Overall, AstraZeneca’s shares earns a spot on my FTSE 100 watchlist and I think it is a stock that could deliver steady returns over the next decade.

The post Why I’d buy AstraZeneca shares in September appeared first on The Motley Fool UK.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Moderna Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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