Shares are down 14% in the past month, but this FTSE 100 heavyweight's current valuation is unjustified, reckons this City expert. Graeme Evans has the details.
An “interesting entry point” for one of London’s biggest stocks has been flagged after a City bank today upgraded AstraZeneca (LSE:AZN) in the wake of the drug giant’s recent de-rating.
Shares have slumped this month following a lukewarm response to trial results for a blockbuster drug being jointly developed to slow the progress of lung cancer.
The sell-off has left shares on 15 times 2024 earnings, which UBS believes is unjustified given the potential for the company to deliver annual compound growth of 15% up to 2027 even without higher-risk pipeline assumptions.
The City bank now has a “buy” recommendation and a target of 13,000p, which it raised from 12,500p after updating its estimates for leading oncology treatments Imfinzi and Tagrisso.
UBS said there now looked to be an opportunity for investors to gain access to a sector-leading pipeline and growth at a “reasonable price.”
Shares today stood at 10,174p, down from 11,276p seen before this month’s keenly anticipated update on the first phase III results from Dato-DXd.
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AstraZeneca said there was “compelling evidence” on the potential role the antibody drug conjugate can play in treating patients with lung cancer.
However, the City clearly hoped for stronger language on the clinical value of the drug, which has been developed in conjunction with Tokyo-based Daiichi Sankyo.
UBS said much of its attention and recent unease with regard to AstraZeneca shares had been on the high market expectations for Dato-DXd.
It said: “Now that last week's release has triggered a de-rating, we are of the view that investors can come back to the stock for the performance of in-market products and their NPV (net present value) that already supports the valuation, leaving meaningful pipeline optionality.”
In April’s first-quarter results, Astra chief executive Pascal Soriot said the company had made a strong start to 2023 after total revenue excluding Covid-19 medicines rose 15%.
He highlighted positive Phase III results for a Lynparza-plus-Imfinzi combination in ovarian cancer, Imfinzi in lung cancer and promising data for Enhertu across a range of cancer types.
Astra is also on track to initiate 30 Phase III trials over the course of 2023.
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UBS said the valuation was now at a level underpinned by growth from in-market franchises.
It said: “While the company is re-loading the pipeline with 30 phase III starts this year alone, investors now find an interesting entry point into a premium grower and innovation company.”
The bank said Enhertu had gone from strength-to-strength as an antibody drug conjugate (ADC) in breast cancer. And despite the Dato-DXd setback, it believes that Astra’s wider ADC platform continues to have significant optionality that at the current valuation is an interesting proposition “even if it remains a complex area”.
Imfinzi and Tagrisso are regarded as essential to UBS’ base case, given that together they amount to about 25% of forecast 2023 product sales and over half the five-year sales growth.
It said: “The competitive field around Tagrisso (also Astra’s most profitable drug) is set to shift this year, but our analysis shows that the products should be able to continue to grow regardless of competitor data.
“On the other hand immuno-oncology agent Imfinzi is having great success at the moment and should continue to surprise to the upside. Combined, these two growth engines continue to perform well, underpinning the base business growth profile.”
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