AstraZeneca (AZN -0.09%), recognized as the world's sixth-largest pharmaceutical entity by market capitalization, made a bold proclamation in May 2014. The company set an ambitious goal of achieving annual revenue exceeding $45 billion by 2023.
This target was met with skepticism by Wall Street and dismissed as excessively optimistic. Contrary to these doubts, however, AstraZeneca realized this revenue milestone and surpassed the S&P 500 in total returns, including dividends, within the same time frame.
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Fast forward to May 21, 2024. During AstraZeneca's investor day, the company unveiled an even more audacious sales objective of $80 billion by 2030, outstripping Wall Street's consensus by a significant 30%. Some analysts met this announcement with familiar skepticism, questioning the pharma-giant's capacity to fulfill such an optimistic long-term revenue projection.
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Can AstraZeneca do it again?
Yet, there are strong indicators that AstraZeneca could repeat its past success. The company is adeptly navigating the patent cliff, which is less daunting compared to peers like Bristol Myers Squibb. Even with key drugs like Lynparza, Soliris, and Farxiga facing patent expirations, AstraZeneca's pipeline of innovative treatments -- including rare blood disorder treatment Ultomiris and cancer therapies Imfinzi, Imjudo, and Enhertu -- is expected to generate nearly $8 billion in new sales by 2030.
AstraZeneca's dedication to innovation is evident in its research and development expenditure, which was nearly 24% of its total revenue in 2023. This investment will likely produce a range of new antibody-drug conjugates for various cancers, novel gene therapies for rare diseases, and a competitive weight loss program. All of these support the company's potential to continue outperforming the S&P 500 in the next decade.
Moreover, AstraZeneca recently announced a 7% increase in its dividend, which now has a forward yield of about 4%, one of the highest in its peer group and significantly above the S&P 500's average yield of 1.35%. Most importantly, companies that regularly boost their dividends above the 6% mark tend to produce above-average returns over five- to 10-year periods.
The fact that AstraZeneca chose to hit the 7% mark with its recent increase seems to be a clear-cut signal to fund managers about the health of the drugmaker's underlying business.
Key takeaways
Finding stocks capable of outperforming the vaunted S&P 500 over a multiyear period is incredibly difficult. Pharma stocks, in particular, are known for outperforming one year and lagging behind the benchmark index for years afterward.
However, AstraZeneca is cut from a different type of cloth. The drugmaker's innovative focused approach to value creation is a proven business model. Yes, setbacks can happen, and AstraZeneca did experience more than its fair share over the prior 10 years.
When this management team says revenue is poised to jump 77% in six years -- despite a string of forthcoming patent losses -- investors would be wise to pay attention. While skepticism is always healthy and stiff headwinds are on the horizon, AstraZeneca arguably deserves the benefit of the doubt, based on its recent past.
