Proactive Investors - AstraZeneca PLC (LON:AZN), the Anglo-Swedish pharmaceutical giant, stands as a quintessential example of a 'Growth at a Reasonable Price' (GARP) investment opportunity, according to Bank of America (NYSE:BAC).
This strategy, which marries the principles of growth and value investing, seeks companies with consistent earnings growth that are not overvalued in the market.
AZ's current market position illustrates the GARP approach effectively. The company is trading at an attractive valuation of 13 times its estimated 2025 earnings per share (EPS), as noted by analysts at BofA. This valuation is considered reasonable within the pharmaceutical sector, especially given the company's robust growth prospects.
The company's forecast compound annual growth rate (CAGR) in EPS from FY25 to FY28 is 12%, indicating a strong potential for earnings growth. This is a key metric for GARP investors, who look for companies that combine financial solidity with promising future performance.
Pipeline
AZ's pipeline is a significant component of its GARP narrative. The company has a best-in-class mid-stage pipeline, which is expected to drive future growth. This includes near-term events like the 2024 EPS guidance and the Dato filing and approval, which are anticipated to clear the path for further growth.
Moreover, the company's comparative advantage in the European pharmaceutical sector is notable. Despite a quieter catalyst path compared to FY23, AstraZeneca (NASDAQ:AZN)'s pipeline is busier relative to its peers, with significant developments in key areas like Imfinzi and Capivasertib.
Looking ahead, AZ faces potential challenges, such as patent cliffs for major drugs like Farxiga and Soliris. However, the progression of its pipeline into phase III starts is expected to mitigate these risks, a factor closely watched by GARP investors.
Financial forecasts further bolster the Anglo-Swedish giant's GARP credentials. The company's sales CAGR from 2025 to 2029 is projected to be around 8%, with FY30 sales anticipated to be approximately 16% ahead of consensus. This better-than-expected top-line growth could positively impact mid-term margins.
For FY24, BofA expects AstraZeneca to guide for low double-digit to low teens EPS growth, factoring in a 2% negative foreign exchange impact. This guidance, while slightly below consensus, aligns with the GARP strategy's preference for sustainable growth.
In afternoon trading, the AZ shares were trading sideways at 10,211.78p.
More about GARP
GARP, or Growth at a Reasonable Price, is an investment strategy that was popularised by legendary investor Peter Lynch. Lynch, who managed the Magellan Fund at Fidelity Investments between 1977 and 1990, achieved remarkable success and recognition through his unique approach to investing, which combined elements of both growth and value investing strategies.
Lynch's philosophy was centred on investing in companies that were growing earnings at a robust rate but whose stock prices did not fully reflect this growth due to various market factors.
This approach allowed him to identify stocks that offered both value and potential for significant growth, a balance that is at the core of GARP investing. Lynch detailed his investment strategies in his books, notably 'One Up On Wall Street' and 'Beating the Street', which have become essential readings in the world of investment.