AstraZeneca is one of the day’s risers on hopes of strong growth after recent weakness.
Its shares are up 59p or 1.3% to 4344.5p after Deutsche Bank raised its recommendation from hold to buy. The bank said AstraZeneca had underperformed the European pharmaceutical sector by more than 10% so far this year, but this offered an attractive opportunity to buy. Analyst Richard Parkes said:
We are increasingly confident in AstraZeneca’s ability to deliver a return to strong growth from a base in 2017. We have increased our outer year sales and earnings per share forecasts by 5%-7% and 6%-12% respectively and expect the company to deliver a 2017-2020 estimated compound annual growth rate in earnings per share of more than 12% as AstraZeneca exits its patent cliff. Although execution risks remain, we believe the shares offer positive risk-reward and a level of upside optionality not available elsewhere in EU large cap pharma. We upgrade to buy with a 5,700p price target.
Although we expect erosion of AstraZeneca’s legacy business to leave a $7bn hole in product sales (2014-17 estimate), we expect the cliff to be bridged through growth platform sales (already 55% of total), oncology pipeline and cost savings. We believe margin pressure can be managed even with high R&D costs through efficiency programmes and reallocation of Crestor sales support.
AstraZeneca’s pipeline has been transformed in recent years, with 15 new drugs now in late-stage development. We... highlight roxadustat (anaemia) as an overlooked $2bn [plus] potential asset. Our revised forecasts suggest a base/bull case for pipeline and new product sales of [an estimated] $11bn-$21bn by 2022 (equal to 40-90% of existing sales).
Meanwhile Shire has added 35p to £48.50 in the wake of a Wall Street Journal report it was considering sweetening its $30bn offer for US biotech company Baxalta.
