Broker tips: AstraZeneca, BAE Systems, Unilever

19th Jan 2016 10:57

(ShareCast News) - Barclays upgraded AstraZeneca to 'equalweight' from 'underweight' and lifted the price target to 5,000p from 4,400p following a review of the pipeline and the recent Acerta Pharma and ZS Pharma deals.It said the upgrade reflected "an attractive growth outlook balanced by the potential for downside risk to consensus estimates in the near term and increasing optionality moving into the 2017 'crunch year' for oncology".After a full pipeline review and following the recently announced deals including the majority stake investment in Acerta Pharma and the acquisition of ZS Pharma, the bank lifted its 2020 revenue estimates by 20%.It now expects the group to deliver 6% top-line and 13% bottom-line growth between 2017 and 2023.Still, it said the promise of AZN's burgeoning pipeline must be tempered against an ever more challenging competitor and payor environment for its diabetes and respiratory franchises."In our view consensus remains too bullish on pipeline expectations, with a changing commercial risk environment in the US and the potential for delays to approval timelines. Our 2020E revenue and earnings per share estimates are 6% and 9% below AZN-compiled consensus, respectively."In addition, it pointed out that AstraZeneca also needs to deal with the loss of patent protection for Nexium, Crestor and Seroquel XR, which account for around $7bn of sales. BAE Systems was under pressure on Tuesday after Credit Suisse downgraded the stock to 'underperform' from 'neutral', saying it was not the bank's preferred defence name, particularly after its recent strong run.CS said given the current backdrop of heightened security threats and questions on economic growth, defence stocks appear attractive in principle, which is a positive for BAE.However, it prefers outperform-rated Thales, which it said offers more attractive prospects than BAE Systems if the latter cannot leverage its historical position in Saudi Arabia for more orders.The bank said exposure to the US and a weakening pound are supportive to the stock, adding that the weakening sterling is also boosting its US sales and profits translated back into sterling.However, it highlighted the stock's recent outperformance as a reason for the downgrade.BAE Systems has been outperforming its US peers by 15% since the budget deal announcement in late October, despite benefitting less than them.In addition, CS reckons the UK-Saudi relationship and the Saudi financial tensions are not supportive of any large order in the near future.Credit Suisse cut BAE to 'neutral' back in October due to the deterioration of the relationship between the UK and Saudi Arabia, which accounts for about 20% of group revenues.It said the market had been counting on the potential sale of another tranche of 48 Typhoon to lift BAE's mid-term prospects quite significantly, but this has proven slow to come. Unilever's 'buy' rating and 3415p price target were left unchanged by Canaccord Genuity on Tuesday after the company reported better-than-expected fourth quarter results.The consumer goods giant reported a 6% fall in full year pre-tax profit to €7.2bn, despite a 10% increase in turnover to €53.27bn, as a slowdown in markets hit growth and the company warned of tougher times ahead.Core operating profit at the Marmite maker was up by €0.9bn at €7.9bn, while underlying sales growth was up 4.1%, with volumes up 2.1% and prices rose 1.9%.Fourth quarter organic sales rose 4.9%, ahead of the 4% consensus forecast, driven by 8.1% growth in emerging markets, which Canaccord said alleviated concerns about economic weakening in China and Brazil."Unilever's fourth quarter demonstrated a continuation of the very resilient top line growth and moderate operating margin growth which it had delivered in the first nine months of 2015," according to Canaccord analysts Eddy Hargreaves and Alicia Forry."While core earnings per share of €1.82 for full year 2015 was no more than in-line, we expect the strong (+8.1%) organic growth in emerging markets in fourth quarter 2015, a meaningful improvement in Home Care margins, and management change in Spreads all to be taken well."