Goldman downgrades AstraZeneca on full valuation

Goldman said the company has a strong pipeline of new medicines but, as ever with pharma, there is a certain amount of uncertainty associated with the clinical success of pipeline development and commercial success once the products are launched.

It sees three key potential areas of downside: below-consensus estimates for the base business and pipeline, limited M&A flexibility, and relatively high valuation.

For 2020, the bank is 10%/20% below consensus on revenue and earnings per share.

Goldman said AZN’s core earnings benefit disproportionately (relative to EU peers) from income streams associated with asset disposals and product out-licensing.

“At the current stock price, we forecast AZN’s implied IRR on its R&D investment to be 9%-12%, significantly higher than that discounted for the peer group (2%-3%); this suggests to us that that the current stock price already discounts significant pipeline success.”

Goldman made it clear the downgrade reflects its view that at the current price, there are better risk-reward ratios across other European pharma names, including Roche, Novo Nordisk and Bayer.

For investors looking for UK exposure, it said GlaxoSmithKline offers a meaningfully better risk-reward, with a higher estimated dividend yield over 2016-17, supported by higher real cash dividend cover.

At 0825 BST, AstraZeneca shares were down 1.6% to 4,001.50p.