Broker snap: Glaxo preferred to Astra

2nd Mar 2011 12:30

UBS has downgraded pharmaceutical giant AstraZeneca as the broker believes the scope for outperformance over a 12-month time frame has been reduced.UBS has shifted from a "buy" rating to "neutral", now that the market has taken account of higher expected returns from Crestor, Astra's cholesterol treatment drug, and Brilinta, its drug for the treatment of acute coronary syndromes.The market has also taken on board Astra's exposure to emerging markets, contributing to the shares' outperformance versus the other members of the Big 5 European pharmaceuticals companies over a one year and two year time horizon.UBS has reduced its earnings per share estimate for 2012 by 3% after taking into account the margins impact of generic competition to Seroquel, its bipolar disorder drug.The 12-month price target has been chopped from 3,700p to 3,125p, as setbacks to drugs in the pipeline "leave fewer options for growth and increase mergers & acquisitions risk", UBS said. "We prefer Sanofi-Aventis, which we upgrade to Buy," the broker said."Ahead of market appreciation of Astra's long-term fundamentals lies 2011-12 generics risk which, in our view, builds from here. GlaxoSmithKline (Buy, Key Call, 1650p), which is coming out of the cliff, and Sanofi-Aventis (Buy, €60), which has improved its profile and should soon see earning momentum, offer more interesting catalysts over the coming months," the broker concluded.