The City analysts tipping AstraZeneca shares to rise again

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A rebound for AstraZeneca (LSE:AZN) shares has been forecast after two City banks said that a bout of turbulence following a drug trial setback and merger speculation had been overdone.

The 15% pullback since early July meant the shares started this week below 12,000p, having traded at a record high of more than 15,000p as recently as February this year.

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UBS today cut its price target from 17,600p but continues to rate AstraZeneca a Buy after backing chief executive Pascal Soriot to deliver his $80 billion (£59 billion) medium-term sales goal.

The bank’s new price estimate of 15,200p compares with 15,000p at Berenberg, which this week said Astra offered top-tier growth and superior R&D returns at an attractive valuation.

The pressure on Astra’s shares began in July when the failure of a late-stage clinical trial for Wainua, a heart condition drug, led to a fall of about 13% to 12,400p.

The second leg lower came in August when unconfirmed reports of $400 billion merger talks with Bristol-Myers Squibb Co (NYSE:BMY) spooked the City and left shares as low as 11,500p.

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UBS said: “In speaking with investors, it is clear that speculation of a merger has focused attention on why such a deal may have been necessary and has heightened concerns on growth beyond 2030.

“In light of this, we decided to re-evaluate our thesis and to consider if AstraZeneca remains a Buy.”

The bank’s study concluded that Astra remains on track to meet its medium-term revenue target of $80 billion, regardless of the success of its Avanzar lung cancer trial later this year.

It also believes that the company can still grow beyond 2030, despite the loss of patent protection for cancer drugs Imfinzi, Tagrisso, and Calquence.

And as the whole EU pharma industry moves towards a significant patent cliff at the end of the decade, UBS expects greater recognition of the multi-billion dollar potential of Astra’s late-stage pipeline options and the growth that they bring beyond 2030.

Berenberg, meanwhile, pointed out that AstraZeneca is on track to deliver a 13% return on R&D investment for its current pipeline cohort and 13% on average for 2016-2024 cohorts.

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This includes the recent failure of highly anticipated readouts in Wainua and its Serena-4 trial of Etcamah in the treatment of breast cancer.

The bank said: “Importantly, positive offsets have occurred highlighting the importance of a diversified portfolio. AstraZeneca continues to offer attractive pipeline optionality.”

The bank sees sales of $82 billion by 2030 and growth of 1% a year in the period from 2030-35, which is in line with the large pharma peer average. Its new price target price offers 28% upside and an implied price/earnings multiple of 18 times.

UBS pointed out that Astra’s current valuation of about 14.3 times forecast core 2027 earnings is higher than the sector average of 13.1 times but below Novartis AG Registered Shares (SIX:NOVN) at 15 times and significantly below Roche Holding AG Ordinary Shares new (SIX:ROP) at 17.4 times.