Phase III Data For New Medicines Will Strengthen Future Outlook

Key Takeaways

• Expansion in emerging markets and ongoing pipeline development could significantly drive future revenue growth.
  
• Investment in next-generation capabilities and a catalyst-rich period ahead may bolster long-term revenue and profitability.
  
• Ongoing investigations, competitive pressures, and pricing challenges in key markets may significantly impact AstraZeneca's revenues, margins, and growth prospects.

Catalysts

A biopharmaceutical company, focuses on the discovery, development, manufacture, and commercialization of prescription medicines.

• AstraZeneca has communicated its ambition to deliver 20 new medicines by 2030, with 8 already approved. This ongoing pipeline development could drive future revenue growth.
  
• The company anticipates significant contributions from several high-value trial readouts expected in 2025, representing over $15 billion in non-risk-adjusted peak revenue potential, likely impacting earnings positively.
  
• Expansion in Emerging Markets, with 22% growth in 2024 and substantial unmet needs, provides a catalyst for continued revenue growth.
  
• AstraZeneca is investing in manufacturing expansion and next-generation capabilities, including ADCs, cell therapies, and oligonucleotides, which may support long-term revenue growth and gross margins.
  
• The company sees 2025 as the beginning of a catalyst-rich period, with anticipated Phase III data for several new medicines that have the potential to contribute significantly to future revenue and profit growth.

AstraZeneca Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AstraZeneca's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.0% today to 20.7% in 3 years time.
• Analysts expect earnings to reach $13.3 billion (and earnings per share of $8.71) by about April 2028, up from $7.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $15.9 billion in earnings, and the most bearish expecting $11.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.6x on those 2028 earnings, down from 32.0x today. This future PE is lower than the current PE for the GB Pharmaceuticals industry at 32.2x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

AstraZeneca Future Earnings Per Share Growth

Risks

• Potential liabilities from ongoing investigations in China could result in significant financial penalties, impacting AstraZeneca’s net margins and earnings.
  
• The anticipated inclusion of key products like Farxiga and Lynparza in VBP (Volume Based Procurement) in China may result in significant price reductions, which could negatively affect revenues and gross margins.
  
• Continued competition in the oncology market, particularly for Tagrisso and the emergence of competitive data (e.g., MARIPOSA trial on overall survival), may affect market share and future revenue growth.
  
• The anticipated decline in gross margins due to factors such as the net effect of the IRA in the U.S., biosimilar impact on Soliris, and ongoing price pressures in Europe, could constrain operating leverage and earnings growth.
  
• The execution risks associated with expanding manufacturing and launching new products, such as Airsupra, where access and reimbursement issues have delayed revenue realization, represent potential challenges to revenue and profit targets.

Valuation

• The analysts have a consensus price target of £140.479 for AstraZeneca based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £189.7, and the most bearish reporting a price target of just £105.48.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $64.3 billion, earnings will come to $13.3 billion, and it would be trading on a PE ratio of 25.6x, assuming you use a discount rate of 6.4%.
• Given the current share price of £112.28, the analyst price target of £140.48 is 20.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.