Citi upgrades AstraZeneca on under-appreciated pipeline

23rd Apr 2014 11:08

The potential value of AstraZeneca's (AZN) drug pipeline is still under-appreciated by the market, with or without a bid from US pharmaceutical peer Pfizer (PFE), according to Citigroup.The bank upgraded its rating for the stock from 'neutral' to 'buy' and hiked its target price for the shares from 3,500p to 4,900p.Citi sees an "extreme undervaluation" of AZN's early- to mid-stage oncology pipeline and estimates at least 26% upside to consensus earnings per share after 2017."However, we clearly misjudged the rapidity of the market re-rating of the stock. However, even after circa 15% relative sector out-performance over the past six months, our original pipeline analysis and discounted cash-flow [valuation] continue to make the investment thesis compelling at these levels."The stock gained strongly on Tuesday on speculation that PFE could make a £60bn bid to take over AZN, representing a 25% premium to the recent share price."While AZN's Chief Executive is likely keen to retain AZN's independence, we see limited defence strategies. The Chief Executive may seek a merger of equals. We note that Amgen and Abbvie both have active oncology programmes, although currently lack a broad immune-oncology portfolio. "Ultimately, we believe that the compelling logic of the putative PFE transaction, and the immediate monetisation of AZN pipeline for AZN investors make a PFE acquisition a high probability event."The stock was up 1.8% at 4,032p by 11:14 on Wednesday, following a near-5% gain the day before.BC