Is AstraZeneca share price slump overdone?
Despite a strong third-quarter update, concerns about the Chinese business have made investors nervous. City writer Graeme Evans reveals what the analysts think.
20th November 2024 15:50
The recovery potential of AstraZeneca (LSE:AZN) continues to divide opinion in the City after the drugs giant and former largest FTSE 100 stock tumbled 24% in the space of three months.
The disclosure of China government investigations and disappointing data on late-stage trial results for Astra’s Dato-DXd lung cancer drug have fuelled the recent selling.
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The fall to below 10,000p for the first time since February appears to be enough for UBS after its analysts today ditched their Sell recommendation and switched to a Neutral stance.
The bank continues to have a price target of 11,300p, which compares with today’s 10,020p.
It said reasons not to be more positive include the highly uncertain timing of any resolution of the issues in China, and any associated costs.
In addition, the bank’s earnings forecasts are below the City consensus for 2025 and 2026 due to the impact of US Medicare reform and higher R&D spend.
Deutsche Bank is also cautious after last week reiterating a Hold recommendation and 10,500p target in the wake of the company’s strong third-quarter update.
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In contrast, Bank of America believes a valuation of 14 times 2025 earnings appears attractive as it forecast a 45% upside for shares to 14,500p.
The bank said last week: “We believe the share price move on China concerns is overdone, and coming quarters giving evidence of limited business impact should reassure investors.”
Counterparts at Berenberg today revealed a new price target of 14,000p, having trimmed its recommendation from 15,000p previously.
As we reported on Monday, chief executive Pascal Soriot is backing an upturn in fortunes after spending £2 million of his own money on shares at a price of 10,203p. Board chair Michel Demaré also declared an investment worth £200,000 on Friday.
They did so after Astra lifted its guidance for annual growth in revenues and earnings per share to a high-teens percentage. Sales growth of 20% in the third quarter came in 4% higher than forecast, driven by asthma product Symbicort and oncology treatment Tagrisso.
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It also unveiled $3.5 billion of US investment in support of its ambition to achieve $80 billion of revenues by 2030, a target underpinned by confidence in its late and mid-stage pipeline.
Astra, which has been overtaken by Shell (LSE:SHEL) as the largest stock in the FTSE 100 index, generated about 13% of its sales and an estimated 10% of earnings in China last year. UBS said the market has been a key growth driver and “perceived strategic differentiator” for investors.
As well as uncertainty caused by the investigation by Chinese authorities into current and former staff, the mood towards Astra and other pharma stocks including GSK (LSE:GSK) was hit on Friday by Donald Trump’s nomination of vaccine-sceptic Robert F. Kennedy Jr as health secretary.
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