Liberum upgrades AstraZeneca to 'buy' despite near-term premium
Analysts at Liberum upgraded their recommendation for shares of AstraZeneca, arguing that the consensus was - yet again - underestimating just how leveraged the firm was to its product pipeline.
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Over the next five years, the company's refreshed products pipeline would boost its product sales by $13.8bn.
On the other hand, thanks to good cost control, its operating costs would only rise by $4.6bn, so that its earnings before interest and taxes were set to jump by 18.0% per year and its earnings per share by 19%.
"As has been the case in the past with such situations, consensus is underestimating the leverage and we are 11% ahead by 2022," analyst Alistair Campbell told clients in a research note.
Hence his decision to upgrade his recommendation from 'hold' to 'buy' with a target price of 8,250.0p.
The next major read out would be from its Poseidon study into the efficacy of Imfinzi in first line lung cancer.
"However, the dataset will be behind competition and may be commercially limited," he added.
Nonetheless, Campbell added: "The oncology pipeline is deep, and has sufficient firepower to feed this franchise well into the next decade. DS8201 should be the next major launch, with data due by year end.
"Although Astra trades on a 39% premium on PE, it is growing much faster, and for much longer than the rest of the sector. An in line PE by 2022 is too cheap."
Deutsche Bank's Richard Parkes was similarly upbeat, telling clients: "While EPS guidance is unchanged and may disappoint some investors, the overall results are still impressive suggesting management's decision to reinvest in China and its pipeline will pay dividends longer-term. Importantly, expectations from a strong underlying margin improvement are on track and commentary suggests earnings reliance on externalisation activity will be further reduced based on strong performance."
Parkes was at a buy with a 7,800.0p target on AstraZeneca.