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AstraZeneca remains 'fairly priced' for Liberum
With Astrazeneca the strongest consensus 'buy' in the sector, broker Liberum has told concerned clients why it only rates the shares at 'hold' rating since late last year, though it upped the share price target to £53 from £50.
"We believe significant upgrades are needed to maintain the current rating required to be a bull, but think this can only come from disproportionate clinical success. Meanwhile, the current share price already assumes by far the highest R&D returns in the sector."
Analysts see a disconnect between consensus forecasts and the market valuation, and suspect "real expectations for key pipeline assets are higher than the print suggests".
The examples of Eli Lilly and Bristol-Myers Squibb show that maintaining a premium rating for a prolonged period requires 25-30% upgrades to expectations. "We think almost all of the Astra pipeline would need to read out successfully to achieve this and support the bull case."
While a very rich vein of newsflow could deliver circa 30% upside to the valuation, the current share price implies around $1.42 is generated for every dollar invested - far higher than most names in the sector.
As such the remarkable turnaround Astra has executed "looks in the valuation" and the shares are broadly correctly priced on fundamentals, "with non-fundamental upside potential if the rating is maintained on upgrades to a depressed compiled consensus".
Furthermore, while there is nowhere near enough data to be sure, analysts are a little concerned that management's very smart strategy for Imfinzi is "currently masking some underlying weakness in the molecule's profile that could undermine the pipeline optionality".