AstraZeneca PLC (LON:AZN) shares nudged higher on Monday morning after UBS hiked its price target for the UK drugs giant.
Analysts at the Swiss bank reckon the current consensus for sales of Tagrisso – Astra’s lung cancer drug which was approved by US and European regulators last year – are too low.
“We forecast US and global Tagrisso sales of US$2.5b and US$5.8b in 2023; 47% and 41% ahead of recent company collated consensus, respectively,” said Jack Scannell in a research note.
READ: AstraZeneca’s “remarkable” pipeline turnaround
The analyst upped his 2026 full-year earnings per share estimate by almost 14% as the drug’s high margin sales flow through.
To fund its recent pipeline resurgence, AstraZeneca has been selling off the rights to some of its non-core assets for an upfront fee, something called an ‘externalisation’ deal.
This generally involves selling a drug for an upfront fee and therefore missing out on future profits, the impact of which UBS doesn’t think has been properly accounted for in the market’s estimates.
“[Our] second analysis looks at Externalisation Revenue (ER) & Other Operating Income (OOI),” wrote Scannell.
“It suggests that consensus under-estimates the future profits that are forgone when Astra trades them for up-front payments.
“If one assumes consensus is right from '18 to '23 on cumulative up-front payments, then forgone run-rate profits could be a 9% drag on operating profit by 2024, before declining.”
TP up, rating still ‘neutral’
The analyst reckons the better-than-expected Tagrisso sales should more than even out the drag on future profits by externalisation deals.
“Hence we maintain our ‘neutral’ rating.” As for his 12-month target price, Scannell upped that to 5,600p from 4,550p.
Astra shares crept 0.6% higher to 5,262p on Monday morning.