AstraZeneca Shares Join Cash Flow Stocks Trading Below Fair Value

Global bond markets are reacting to central bank signals and buyback plans that affect long term interest rates and liquidity. That kind of backdrop can leave some cash rich companies trading below what their future cash flows suggest they may be worth. The Undervalued Stocks Based On Cash Flows screener helps surface those potential gaps. This article highlights three stocks from the screener that merit a closer look.

The three stocks covered below are just a small sample from this idea, and the full screen surfaced 43 more companies with equally cash flow focused stories that are not covered here. To identify and analyze those opportunities directly, head into the Undervalued Stocks Based On Cash Flows screener.

AstraZeneca (LSE:AZN)

Overview: AstraZeneca is a global biopharmaceutical company that develops and sells prescription medicines, with a major focus on oncology drugs like Tagrisso, Imfinzi, Lynparza and Enhertu that are important cash flow engines alongside treatments in cardiovascular, renal and metabolism, respiratory and immunology, vaccines and rare diseases.

Operations: AstraZeneca generates about $61.4b in revenue from its pharmaceuticals segment.

Market Cap: £186.9b

AstraZeneca earns a place in a cash flow focused screener because its oncology and immuno oncology franchise is already throwing off sizeable cash and sits alongside a broad late stage pipeline that analysts expect to support double digit earnings growth. At the same time, Simply Wall St’s DCF work points to the shares trading at a steep discount to estimated fair value, despite high profit margins, strong return on equity and a record of consistent earnings growth. The catch is heavy reliance on a handful of blockbuster drugs and a sizeable debt load, plus real pricing pressure from regulators. For investors, the question is whether the durability of those oncology cash flows is strong enough to outweigh these risks and close that valuation gap.

AstraZeneca’s oncology cash flows and discounted valuation story only make sense when viewed alongside the pipeline expectations that analysts are building in. Before assuming that gap will close on its own, review the analyst forecasts for AstraZeneca to see what might be missing from the picture.

Build your own cash flow shortlist

AstraZeneca and the two other stocks in this piece all came from a single screener, but the real value is creating filters that match how you think about cash flows, valuation and quality. Use our flexible Screener to set your own rules, or lean on our curated Investing Ideas if you prefer ready made shortlists.

Foresight Group Holdings (LSE:FSG)

Overview: Foresight Group Holdings is a London based asset manager that runs infrastructure and private equity funds, with a core focus on renewable energy projects like solar, onshore wind, energy from waste and energy storage that can generate recurring management and performance fees. Alongside this cash flow centric infrastructure business, the company invests across private equity, venture capital and listed real asset strategies for institutional and retail clients.

Operations: Foresight Group Holdings generates about £114.8 million of revenue from Real Assets and £50.1 million from Private Equity, with most revenue coming from the United Kingdom and Australia.

Market Cap: £544.6 million

Foresight Group Holdings may appeal to investors who focus on cash flow because its renewable infrastructure funds provide a stream of recurring fees. Simply Wall St’s DCF work suggests this is not fully reflected in the current share price. Earnings have been growing, buybacks have reduced the share count and analysts report room for further AUM growth as the company builds relationships in underpenetrated markets. On the other hand, there is reliance on performance fees, external borrowing and policy support for renewables, which can all introduce variability in that cash flow profile. For those seeking exposure to the energy transition through fee based infrastructure management rather than owning the assets directly, this business could warrant a closer look.

Foresight Group Holdings is building fee streams across renewables and private equity, yet the real story may be how that AUM pipeline could scale from here. See what the analyst forecasts for Foresight Group Holdings might be missing.

BAE Systems (LSE:BA.)

Overview: BAE Systems is a global defense and aerospace company that supplies combat vehicles, munitions, naval ships, submarines and advanced electronic systems under long term contracts with governments such as the US, UK, Saudi Arabia and Australia, alongside cyber security and intelligence services. Its Platforms & Services and Maritime segments are central to the cash flow story, because multi year, government backed programs provide a high degree of revenue visibility that supports the DCF based undervaluation case.

Operations: BAE Systems generates most of its revenue from Electronic Systems at £7.8b, Air at £7.7b, Maritime at £6.7b and Platforms & Services at £5.3b, with smaller contributions from Cyber & Intelligence and HQ, and reported intra group sales of £603m.

Market Cap: £61.2b

BAE Systems offers a mix of long term, government backed contracts and cash flow stability that fits this screener, with Platforms & Services and Maritime underpinning multi year revenue from vehicles, munitions, shipbuilding and submarine support. Analysts attribute earnings expectations to a £75b order backlog and demand for drones, munitions and electronic warfare systems, while the stock trades below Simply Wall St’s DCF estimate of fair value. At the same time, heavy reliance on a handful of major government customers, ESG pressure and capacity bottlenecks in areas such as missile production mean converting that backlog into cash involves risk. For investors, the interest lies in how that contract pipeline, reported program wins and ongoing buybacks balance against these pressures.

BAE Systems’ long term government contracts and sizeable order book hint at cash flows the market may not be fully pricing in yet. The analysis report for BAE Systems could highlight where that comfort in visibility might quietly crack.

Seeking Fresh Alternatives Beyond These Three

Fresh ideas do not stay under the radar for long. Before momentum takes hold and ideal entries get caught by the crowd, scan these curated shortlists and get in early.

• Target resilient compounding by reviewing a curated set of companies with strong balance sheets and fundamentals in the list of solid balance sheet and fundamentals (19 results).
• Ride potential breakout trends across companies wired into AI infrastructure by checking the hand picked opportunities inside the 55 AI infrastructure stocks.
• Catch early momentum in companies leveraged to an expanding nuclear build out through the carefully filtered ideas in the 92 nuclear energy infrastructure stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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