Why FTSE 100’s second-biggest company is a bargain

Its shares have been in a sharp uptrend for a decade but have suffered a predictable wobble since August’s record high. Now they’re worth buying argue these experts.

AstraZeneca (LSE:AZN) retained the support of a leading City bank today after it flagged a 25% upside for shares ahead of a big year for potential drug pipeline developments.

Bank of America’s target of 12,500p follows a period of weakness for UK’s second- largest stock, which has fallen 13% since late August to stand at 9,905p.

Based on a current valuation of 16 times 2023 earnings, the bank said Astra was a top pick for its premium growth over the next five years and a “busy pipeline event path”.

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It said Astra traded at a “meaningful discount” to similar growth stories such as Novo Nordisk A/S ADR (NYSE:NVO) and Eli Lilly and Co (NYSE:LLY), partly because of questions on the durability of its growth as drugs such as cardiovascular product Brillinta and Lynparza in oncology approach patent cliffs.

Bank of America thinks 2023 “goes a long way to resolving this debate”, with the prospect of multiple late-stage clinical trial readings such as breast cancer treatment Enhertu.

The City bank added: “We believe a robust pipeline progression positions Astra’s pipeline as best-in-class, potentially allowing premium long-term growth.

“We expect multiple product launches and phase three (clinical trial) catalysts to drive meaningful sales growth at AstraZeneca for the first time in almost a decade.”

Today’s note also looks ahead to third-quarter results due on 10 November, with the Bank sitting slightly below consensus with a forecast for 34% earnings per share growth to $1.44 (£1.27) on total sales of $10.6 billion (£9.38 billion).

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In Astra’s half-year results in July, chief executive Pascal Soriot upgraded revenues guidance due to the impact of Covid-19 medicines and the continued strong performance of the overall business, including the Alexion rare diseases acquisition.

He also pointed to “practice-changing data” for several medicines including Enhertu in breast cancer, Farxiga in heart failure and Ultomiris in neuromyelitis optica spectrum disorder.

In a separate note, Deutsche Bank also highlighted a big upside for AstraZeneca shares today, with a price target of 12,000p.

It added that Evusheld, which reduces the risk of vulnerable Covid patients progressing to more severe symptoms, looked to be “a key swing factor for estimates over the coming years”.

The bank sees a meaningful commercial opportunity but notes slow progress so far and questions over the persistence of efficacy against omicron sub variants.