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AstraZeneca’s FY09 operational performance showed it was able to benefit from
the opportunities created by the shortage in supply of generic Toprol XL and the
swine flu vaccine, while also decreasing its working capital by $1.3bn. However, its
shares trade at a considerable discount to its peers (FY09 P/E of 7.4x vs 12.5x)
because of exaggerated concerns about the patent cliff. The five-year guidance
suggests that revenues could be 15% higher than 2014 consensus forecasts.
Cautious on 2010, but more optimism thereafter
Although AstraZeneca reported adjusted EPS 8% below consensus estimates for Q4
09 and tempered expectations for 2010, it presented optimistic guidance for the next
five years. The company believes that revenues in 2014 will be nearing $34bn, c 3%
higher than in 2009, while consensus estimates suggest they will be 13% lower.
Confidence of overcoming looming patent cliff
This suggests AstraZeneca is confident about negotiating the challenges caused by
patent expiries on key products (Arimidex, Nexium and Seroquel), with revenue
pharmaceutical company focussed primarily on gastrointestinal,
growth from the rest of its portfolio, including its promising new products (eg
Onglyza and Brilinta), likely to more than compensate for lost revenues. This
guidance is dependent on the successful defence of Crestor’s patents.
Consensus well below medium-term guidance
We believe that consensus estimates are conservative and are forecasting adjusted
EPS of $5.60 compared to $5.37 in 2014. AstraZeneca’s revenue guidance suggests
that it could achieve adjusted EPS of c $6.30 by 2014, 14% above our figure.
We value AstraZeneca at £48.2bn using DCF, which puts the shares on a P/E of
8.4x, still at a significant discount to peers, which trade on average at 12.5x. The
downside risk is reduced by the introduction of a progressive dividend policy with
the shares yielding 4.9% and the re-introduction of a share buy-back programme.
There is considerable upside if AstraZeneca can deliver on its long-term guidance.
Note: Edison Investment Research estimates
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