AstraZeneca Undervalued, say Analysts

Analysts have upped their 'fair value' share price estimate for the pharmaceuticals company to £35 - well above the current price of £31.42 - despite patent risks

Damien Conover, CFA 9 October, 2013 | 10:47AM

Pharmaceuticals giant  AstraZeneca (AZN) has had its fair value estimate - that is the price that analyst think is an accurate representation of the companies' worth - raised to 3,500p.

AstraZeneca faces the typical risks inherent in the pharmaceutical industry, including patent expirations, regulatory delays, and non-approvals, as well as increasingly aggressive generic and managed-care industries. Also, specific to Astra, the risk of heart attack prevention drug Brilinta failing in the market is magnified as the company lacks many recently launched potential blockbuster drugs. Further, Astra holds a relatively high exposure to generic competition over the next several years.

We project a 3% average annual sales decline during the next 10 years as patent expirations take their toll. Although we expect operating margins to decline during the next five years because of patent losses on high-margin drugs, the company's restructuring efforts should help mitigate the margin erosion. We estimate a cost of capital of 8%, which is consistent with those of pharmaceutical peers. During the next five years, all three of the company's current growth drivers lose patent protection, magnifying the importance of pipeline products.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC7,777.00 GBX1.66

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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