Sell income manager favourite AstraZeneca, says The Share Centre
The Share Centre has downgraded pharmaceutical giant AstraZeneca – a favourite holding among income funds – over concerns of its lack of diversification.
AstraZeneca has been given a sell rating in reflection of its poor product pipeline, the looming patent cliff and reliance on blockbuster drugs. The Share Centre says the group’s second quarter earnings, which showed a 32 per cent fall in operating profits, support its worries about the company.
The Share Centre investment research analyst Helal Miah says: “The company has solely focused on branded prescription medicines. While this can be a successful strategy if the pipeline of drugs in R&D makes it to the market, unfortunately this is not the case for AstraZeneca whose late stage pipeline is wearing thin.
“It also has several key drugs with patents due to expire in the next few years. Unlike some of its peers, AstraZeneca has ignored manufacturing generic drugs themselves, which is a useful insurance strategy when the pipeline looks weak and patents near expiration.”
AstraZeneca is a popular holding among income funds. The stock is in the top 10 holdings of Neil Woodford’s £11.7bn Invesco Perpetual High Income and £9bn Invesco Perpetual Income funds*, Adrian Frost and Adrian Gosden’s £4.2bn Artemis Income fund*, Tineke Frikkee’s £2.2bn Newton Higher Income fund** and Anthony Nutt and Philip Matthew’s £2bn Jupiter Income Trust*.
Miah points out that the company has embarked on a cost-cutting mission to safeguard its profitability. However, the analyst says future revenues will remain vulnerable unless it can develop a stronger drug pipeline.
The Share Centre adds that GlaxoSmithKline, which is also owned by the mentioned income managers, is its preferred holding to gain exposure to the pharmaceutical sector.
“The company is confident of its late stage pipeline, with a potential to launch eight new drugs and vaccines in the next 24 months, which should be a material driver for organic growth,” Miah explains.
“The yield is attractive at around 5% and the growth story also looks to be improving.”
* as of June 29
** as of May 31
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