AstraZeneca PLC (AZN) is developing Europe’s top COVID-19 vaccine candidate and has resumed Phase 3 trials in many countries after a U.K. patient reportedly suffered a “serious adverse reaction.” The United States is a notable exception, with the Food and Drug Administration (FDA) continuing a halt while it widens the scope of an investigation. Unfortunately, politics can’t be ruled out, because any delays could benefit American vaccine candidates.
- AstraZeneca price action has slumped badly since July, despite Phase 3 vaccine trials.
- The FDA may be delaying the company’s U.S. trials to benefit local candidates.
- The company’s deep drug pipeline is more important to the bottom line than the COVID candidate.
The European Medicines Agency (EMA) has just begun a “rolling review” of the trial, meaning it is taking a look at the first batch of data. This approach is used to speed up the approval process but may also benefit the European Union’s competitiveness in getting a profitable drug to market. Still, it will take “weeks and months” to analyze and evaluate ongoing large-scale clinical trials, especially if new adverse reactions are reported.
AstraZeneca stock has struggled since popping to an all-time high in the $60s in July, with heavy selling pressure indicating that speculators are walking away in favor of other pharmaceutical companies. In addition, AstraZeneca is already one of the world’s biggest drug companies, with valuation levered to a broad pipeline rather than hopes of hitting the COVID jackpot. Even so, good news should reawaken buying interest, potentially adding 15% to 20% to the current stock price.
AstraZeneca is covered by just four Wall Street analysts, with the entire quartet posting “Buy” ratings. Price targets range from a low of $61 to a Street-high $121, while the stock opened Thursday’s session $5 below the low target and $65 below the high target. This humble placement should support much higher prices, but potential shareholders shouldn’t dismiss unusually weak buying interest, which probably reflects lesser-known headwinds.
A price target is an analyst’s projection of a security’s future price. Price targets can pertain to all types of securities, from complex investment products to stocks and bonds. When setting a stock’s price target, an analyst is trying to determine what the stock is worth and where the price will be in 12 or 18 months. Ultimately, price targets depend on the valuation of the company that’s issuing the stock.
AstraZeneca Long-Term Chart (2006 – 2020)
The stock topped out at $33.24 in 2006 after a multi-year uptrend and sold off into the mid-teens following the 2008 economic collapse. A recovery wave into the new decade finally reached the prior high in 2014, yielding an immediate breakout that carved little upside before stalling in the low $40s a few months later. Aggressive sellers took control into the end of 2016, posting three-year low in the mid-$20s.
Channeled price action took control in 2017, completing a round trip into the 2014 high in the fourth quarter of 2018. A breakout made steady progress through 2019 and into the January 2020 high at $51.55, ahead of a pandemic-driven selloff that broke channel support before ending at a 14-month low. The stock remounted the channel in April and broke out once again in May, lifting to an all-time high at $64.94 on July 20.
A price channel appears on a chart when a security’s price becomes bounded between two parallel lines. Depending on the direction of the trend, the channel may be termed horizontal, ascending, or descending. Price channels are often used by traders who practice the art of technical analysis to gauge the momentum and direction of a security’s price action and to identify trading channels.
AstraZeneca Short-Term Chart (2019 – 2020)
Investors ran for the hills after the July peak, quickly dumping the on-balance volume (OBV) accumulation-distribution indicator from an all-time high to a four-month low. OBV has shown little or no buying interest since that time, while price action has flatlined across the 50-day exponential moving average (EMA). Taken together, this marks broad disinterest rather than a simple holding pattern, possibly indicating that the market does not expect the COVID candidate to move the needle.
The Bottom Line
AstraZeneca stock is trading much worse than Wall Street ratings and investor expectations, given the ongoing Phase 3 vaccine trials.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.