Will AstraZeneca Discover Rising Prices?

With shares of AstraZeneca (NYSE:AZN) trading around $47, is the stock an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our Cheat Sheet investing framework:

T = Trends for a Stock’s Movement

AstraZeneca is a global biopharmaceutical company. The company discovers, develops, and commercializes prescription medicines for six areas of healthcare: cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation. AstraZeneca’s products include Crestor, Atacand, Seloken/Toprol-XL, Plendil, Onglyza, Zestril, Symbicort, and Zoladex. As health and wellness become increasingly more important to consumers around the world, AstraZeneca is now collaborating with other companies to share data on early stage drug design, which it hopes will help speed up the process of developing effective medicines. As the world becomes more aware of disease and illness, look for companies like AstraZeneca to provide the comfort and medication demanded by people worldwide.

T = Technicals on the Stock Chart are Weak

AstraZeneca stock has been part of a value range extending back several years. The stock is now trading near lows for the year, so it may need some time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages: 50-day (pink), 100-day (blue), and 200-day (yellow). As seen in the daily price chart below (source: Thinkorswim), AstraZeneca is trading below its key averages, signaling neutral to bearish price action in the near term.

AZN

Taking a look at the implied volatility (red) and implied volatility skew levels of AstraZeneca options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

AstraZeneca Options

21.25%

90%

88%

Investors or traders are buying a significant amount of call and put options contracts, compared to the past 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of Wednesday, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts, and are leaning neutral to bearish over the next two months.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions also help gauge investor sentiment on AstraZeneca’s stock. What do the last four quarterly earnings and year-over-year revenue growth figures for AstraZeneca look like and, more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-36.22%

8.09%

-52.36%

-16.99%

Revenue Growth (Y-O-Y)

-13.12%

-15.87%

-18.64%

-21.00%

Earnings Reaction

-0.64%

-3.27%

1.32%

0.77%

AstraZeneca has seen decreasing earnings and revenue figures in the last four quarters. From these numbers, the markets have not been pleased with AstraZeneca’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has AstraZeneca stock done relative to its peers, Pfizer (NYSE:PFE), GlaxoSmithKline (NYSE:GSK), Bristol-Myers Squibb (NYSE:BMY), and sector?

AstraZeneca

Pfizer

GlaxoSmithKline

Bristol-Myers Squibb

Sector

Year-to-Date Return

1.10%

11.41%

14.24%

41.15%

18.33%

AstraZeneca has been a relatively poor performer, year-to-date.

Conclusion

AstraZeneca is a biopharmaceutical company that is involved in the research and development of drugs. The stock has been part of a price range over the past several years and is now trading near lows for the year. In the past four quarters, earnings and revenue figures have been decreasing, which has resulted in not-too-happy investors. Relative to its peers and sector, AstraZeneca has been a poor performer, year-to-date. WAIT AND SEE what AstraZeneca does in coming quarters.

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