The Rare Double Upgrade: Why Morgan Stanley Loves AstraZeneca After Hating It

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  • On Tuesday, analysts at Morgan Stanley took a look at AstraZeneca plc (ADR) AZN as it starts to reap the benefits of the strategic changes that CEO Soriot implemented three years ago.
  • After a double upgrade, the firm rates the stock an Overweight, setting a 53 Pounds price target for London-traded AstraZeneca plc AZN shares.
  • The experts see several pipeline catalysts for the year to come, and believe “a floor EPS of $4.20 looks plausible.”

After years of substantial investments, AstraZeneca seems to offer “good pipeline optionality and more reasonable expectations,” analysts at Morgan Stanley noted in a recent report. The experts see upside risk to consensus for fiscal 2016 and fiscal 2017, as the estimates ignore “AstraZeneca levers to reach its floor $4.20 core EPS despite patent expiries (growth platforms/launches on existing infrastructure with material savings, externalization revenue).”

The firm consequently launched its 3-year CAGR earnings estimate to 2019, which “captures the profitability inflexion point and allows for 10%+ growth.” Based on these projections, the experts decided to upgrade the stock from Underweight to Overweight, boosting their price target by 10 Pounds, to 53 Pounds.

The report highlighted a few major R&D catalysts coming up in 2016. The company’s renewed focus on R&D should finally pay out in 2016, as Phase 3 readouts for three main assets and three new launches take place. The firm estimates up to $9 billion combined opportunity – or 6 Pounds per share NPV from assets outside of the immune-oncology field.

Moreover, the news flow for immune-oncology assets will see a significant acceleration as of the end of 2016, with multiple notable readouts coming up.

Finally, the experts looked into valuation. Apparently, AstraZeneca trades at a 10 percent P/E discount to its peers. And, according to the analysts, this valuation does not reflect the company’s long-term growth potential.

 

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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Posted In: Analyst ColorBiotechLong IdeasUpgradesHealth CarePrice TargetAnalyst RatingsMoversTrading IdeasGeneralMorgan Stanley
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