HSBC downgrades AstraZeneca, sees no near-term relief

HSBC downgraded AstraZeneca to ‘hold’ from ‘buy’ and cut the price target to 4,880p from 4,910p.

It said the company’s full year results last Thursday were solid, slightly ahead of expectations in terms of sales and in line at core earnings per share level.

The bank said declines in off-patent products Nexium and Seroquel XR were as expected, with increased pricing for Crestor offsetting lower volumes. Meanwhile, the diabetes franchise held up well.

However, HSBC pointed out the market responded negatively to guidance of a low to mid-single-digit decline in 2016 sales and core EPS.

HSBC reckoned the selloff in the shares last week was overdone. “However concerns over portfolio strategy and a near-term lack of growth may outweigh the longer-term potential in investors’ minds.”

The bank highlighted the fact that prospects for long-term growth and profitability rest entirely on the company’s pipeline delivery, most notably in oncology and immunology, which contribute 56% to its 2023 sales forecast.

“On our estimates, and in line with company guidance, sales and profit growth should bottom out in 2016e and 2017e before returning to growth in 2018e.”

Given this backdrop, HSBC said even positive news flow is unlikely to receive anything more than a muted reaction near-term as investors wait for material signs that divestments, bolt-on acquisitions and higher R&D spend will benefit the bottom line.

At 1225 GMT, AZN shares were down 2% to 4,026p.