Broker tips: AstraZeneca, Close Brothers, Shire

Jefferies upgraded AstraZeneca to 'buy' from 'hold' on Monday, lifting the price target to 5,600p from 5,075p as it said the pharmaceuticals giant is at a "turning point".

The bank said that accelerating new product launches and improving margins should deliver more than 20% core earnings per share growth in the mid-term.

"As one-off, externalisation contributions decline core EPS quality is also improving, whilst the dividend once again becomes covered by the underlying business. Recovering growth, driven by the underlying business warrants a modest mid-term premium valuation."

Jefferies said several years of rebuilding the pipeline is now coming to fruition as new product launches build momentum.

After updating its model, the bank's mid-term revenue forecast is around 6% ahead of consensus.

"Our expectations for Lynparza, Brilinta, Farxiga and Fasenra are key drivers of this, reflecting the benefit of further indication expansion over the mid-term. Furthermore, over half the sales that we forecast to come from new and recently launched products between 2017A-22E, are generated by products that are already launched, or have already reported positive Phase III data, helping to de-risk expectations."

Merchant bank Close Brothers was under the cosh on Monday as Berenberg cut the stock to 'hold' from 'buy', saying the valuation was now fair while upping its price target on the stock to 1,530p from 1,515p.

The bank initiated coverage of Close Bros with a 'buy' rating last November as it felt the market was punishing the group unfairly for its strategy of targeting longer-term profitability, maintaining margins and underwriting discipline instead of chasing loan volumes at any price.

It said the first half results showed solid profits growth, with the performance from both asset management and securities helping to increase operating profit by 6% on the year, earnings by 7% and the interim dividend by 5%.

"While these results do not change our positive view of this approach, we feel that the valuation is fair, so we downgrade to hold."

Berenberg said Close's recent investment in the asset management division has paid off, with annualised net inflows to its managed assets of 13%, driving total assets up to £11.8bn and profits up by 25% year-on-year.

"The banking division is a best-in-class niche business, which generates net interest margins above 8% through a focus on service and expertise and not price alone."

Analysts at Morgan Stanley took a fresh look at rare diseases specialist Shire on Monday, revisiting their bear case as the investment bank reiterated its 'overweight' rating on the group.

Morgan Stanley, which snipped its target price on the to 4,700p from its previously issued 5,700p mark, reassessed is bull-bear base values by around 20%, citing setbacks for Lialda generics for the ulcerative colitis drug, challenges for Xiidra's dry-eye market access, threats to the haematology unit, and low visibility on a potential separation of neurosciences, driving a 12% cut to the 2018 consensus EPS forecast.

"We also consider different valuation methodologies to gauge a support level for the stock. Our stress test suggests that £29/sh appears to be a floor, slightly above our £27 bear case derived from a less granular approach," Vincent Meunier and his team of analysts said.

With the shares changing hands for not much more than 3,000p, analysts' 4,700p price offered a 50% upside and reflected a lower long-term discounted cash flow assumption, even if Shire could still suffer from increased competition in its rare diseases wing, which had so far not been perceived as a risk, as well as the potential of failing to fully integrate Baxalta and extract planned cost synergies from the former Baxter International business.

"Shire has undoubtedly suffered from negative newsflow and the overhang of competition. We struggle to justify significant absolute downside from here; the stock remains undervalued and underappreciated for its strong delivery," the Monday note read.