AstraZeneca PLC (NASDAQ:AZN) Emerges as a Quality Investment Candidate

For investors aiming to create a durable, long-term portfolio, the ideas of quality investing present a useful structure. This method concentrates on finding companies with lasting competitive strengths, sound financial condition, and the capacity to produce steady, reliable profits over many years. Instead of pursuing short-term bargains, quality investors intend to become long-term holders of outstanding businesses. A structured method for locating these companies can start with a stock screener, using filters that measure important elements of financial soundness and operational performance. One specific plan, drawn from the "Caviar Formula," employs a multi-step screen to separate firms with better revenue and profit increases, high returns on capital, reasonable debt, and profits supported by solid cash flow.

AstraZeneca PLC (NASDAQ:AZN) comes forward as a candidate from this screening process, displaying a number of traits that match a quality investing view. The global pharmaceutical leader, with a varied portfolio covering oncology, cardiovascular, respiratory, and rare disease treatments, seems to satisfy the strict numerical standards set by the screen.

Satisfying the Main Quality Standards

The basic screen for quality stocks stresses continued increase, high profitability, and financial care. AstraZeneca's recent financial results show it meets these requirements.

• Continued Increase: The screen demands a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. AstraZeneca exceeds this clearly, with a 5-year revenue CAGR of 7.2% and a notable EBIT CAGR of 27.3%. More significantly, a central rule of the screen is that EBIT increase should exceed revenue increase, pointing to better operational effectiveness and possible pricing strength. AstraZeneca's 27.3% EBIT increase compared to 7.2% revenue increase firmly meets this rule, implying the company is effectively turning more of each sales dollar into operating profit.

• Outstanding Capital Use: For quality investors, how well a company uses its capital is critical. The screen requires a Return on Invested Capital (leaving out cash, goodwill, and intangibles) above 15%. AstraZeneca's ROIC on this measure is a very high 81.6%, pointing to an excellent ability to create profits from its main business investments. This high return is a sign of companies with strong competitive barriers and capable management.

• Sound Financial Condition & Profit Dependability: The plan assesses debt sustainability by comparing total debt to free cash flow, looking for a ratio under 5. AstraZeneca's ratio of 3.4 suggests it could repay all its debt with just over three years of current free cash flow, indicating a comfortable and workable debt level. Also, the screen checks for high "profit dependability"—the percentage of net income turned into free cash flow—setting a 5-year average limit of 75%. AstraZeneca's number is a very high 772%, although this particular measure can be affected by large non-cash accounting items and working capital shifts in a specific period. The main point stays that the company creates significant cash well above its accounting profit, offering great financial room for dividends, reinvestment, or strategic actions.

Fundamental Review Summary

An examination of AstraZeneca's wider fundamental analysis report gives a more detailed view that mainly supports its quality standing. The report gives AZN a total rating of 6 out of 10, noting clear positives together with some areas for review.

• Profitability is a Main Positive: The company gets a 9 out of 10 for profitability. It has sector-leading margins, with an operating margin of 24.3% that beats 91% of its pharmaceutical industry counterparts. Its return on equity (20.5%) and return on invested capital (14.4%) are also in the top group of the industry.

• Dividend Character is Steady: With a score of 7, the dividend is seen as a firm aspect. While the yield of 1.74% is moderate, the company has a dependable history of paying and not reducing its dividend for over ten years. The payout ratio is considered workable, especially with earnings increase currently exceeding dividend increase.

• Valuation is Fair Considering Circumstances: The valuation score of 6 shows a varied but acceptable view. While its P/E ratio looks high alone, it is actually lower than over 81% of its industry counterparts and the wider S&P 500. The report states that the company's very good profitability may support its valuation multiple.

• Points for Attention: The main warning in the report focuses on financial condition, which scores a 4. This is mainly because of low short-term liquidity ratios (Current and Quick Ratios below 1), which is not unusual in capital-heavy sectors like pharmaceuticals but calls for notice. However, this is offset by a strong Altman-Z score (3.56) showing low bankruptcy risk and the earlier mentioned healthy Debt-to-FCF ratio.

Is AstraZeneca a Quality Investment Prospect?

Based on the numerical filters of the Caviar Cruise-inspired screen, AstraZeneca makes a firm argument. It shows the necessary features quality investors look for: steady and effective increase, top-tier returns on invested capital, strong free cash flow creation, and a workable debt setup. These numbers indicate a business with pricing strength, operational performance, and a lasting competitive place in the necessary healthcare sector.

The wider fundamental review agrees with this, describing a highly profitable sector leader with a shareholder-aligned dividend policy. The main topics for additional careful study would be the company's short-term liquidity management and confirming its future growth pipeline—with 19 late-stage molecular entities—supports its valuation as increase rates naturally slow from prior highs.

For investors wanting to use this quality-centered method to find other possible candidates, you can view the current screen settings and outcomes directly using this Caviar Cruise stock screener.

---

Disclaimer: This article is for information only and does not form financial guidance, a suggestion, or an offer to buy or sell any security. Investing carries risk, including the possible loss of principal. You should perform your own study and talk with a qualified financial consultant before making any investment choices.