AstraZeneca Q4 Earnings Preview

The drugmaker’s trouble generating margins while fulfilling non-for-profit vaccine contracts could be about to end as it turns to for-profit boosters and other high-margin products.

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Profits need to follow sales

The consensus among analysts is that AstraZeneca will post a healthy increase in top-line results. Sales are expected at $11.1B compared to $9.87B reported last quarter. The issue is that there doesn't seem to be a correlation between sales growth and profitability. Analysts from the last earnings report concluded that the British-Swedish company needed to address the issue of margins after failing to reach even the most pessimistic forecasts.

That is likely to be the market's focus this time around. Analysts are optimistic about the bottom line, forecasting EPS of $0.77 compared to $0.54 in the last quarter.

The covid vaccine

Last quarter, the company's top-selling product was its covid vaccine, accounting for a little over 10% of sales. The issue is that AstraZeneca is still fulfilling no-profit contracts made with the British government and others during the start of the pandemic. Those contracts are expected to start rolling off in the coming months, which can help the company boost its margins. This is one topic from CEO Pascal Soirot’s post-earnings comments that could drive the stock.

Guidance

The company will be providing its first annual guidance since the onset of the pandemic, which could be pivotal. Before the pandemic, the company quite consistently guided 20% annualized sales growth. Any variation could change the expected trajectory of the stock.

Like all pharma companies, the main products are lagging in sales due to covid, particularly oncology. They tend to be the drivers of margin for the company. With covid becoming more endemic, there could be more stability in the sales of AstraZeneca's main product, Lymparza.

AZN share price flirts with bears

The price of the AstraZeneca stock has entered a bear market again. Price action has formed a ‘death cross’ with the 50-day moving average crossing below the 200-day moving average. The last time the 200-DMA was broken, the share declined another 5% with little follow-through.

Should the price repeat history and rise back over the 200-DMA shortly after dropping below it, this would be a bullish tailwind for the stock and could open up a path towards all-time highs near 9,500.

The major line in the sand for bears is (GBX) 8,100, which is the neckline to a possible head and shoulders top, whether the right shoulder was formed this month and the left shoulder in July and August last year.

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Takeaways

The main point of focus for investors this time around will be margins both reported in the fourth quarter but more importantly with thin guidance from Mr Soirot.

If AstraZeneca indicates that the expected rising sales have not (and will not) have a proportional impact on profits, the stock could slide lower. On the flip side, indications that the pharma giant moving away from non-for-profit vaccine sales to for-profit covid sales and a post-pandemic increase in demand for its highest-margin products could positively impact the share price.