AstraZeneca stock holds 26% upside on 'multitude of pipeline catalysts', says Jefferies

• AstraZeneca landed a rating upgrade to buy from hold and a price-target increase to $61.50 from $56 at Jefferies.
• A pullback in shares after the release of upcoming COVID-19 trial data may provide a 'buying opportunity'.
• The potential of a larger R&D budget stemming from AstraZeneca's deal with Alexion is a 'widely overlooked' benefit.

AstraZeneca shares could gain at least another 25% as upcoming COVID-19 vaccine data should provide a buying opportunity, says Jefferies, which also foresees the strategic merits of the drug maker's pending acquisition of Alexion Pharmaceuticals become more "widely appreciated".

AstraZeneca's "impressive revenue and profit trajectory is compelling" relative to its European pharmaceutical industry peers, said Jefferies in a research note Tuesday in which it raised its rating to buy from hold. The price target was also increased, to $61.50 from $56.

AstraZeneca's US-listed shares closed Monday at $48.77, implying that the stock could gain another 26%. Shares of AstraZeneca rose 2.7% to $50.08 as Tuesday trade got underway. The stock has lost more than 2% on a year-to-date basis but has gained 19% over the past 12 months.

Jefferies said upcoming data from a phase 3 trial of AstraZeneca's COVID-19 vaccine AZD1222 could look relatively underwhelming because of a sub-optimal four-week dosing schedule used in the study.

"A negative stock reaction to headline results from the US study could represent a buying opportunity, in our view, because it has already been shown that the vaccine works better with a longer dosing interval," said Jefferies equity analysts led by Peter Welford.

Meanwhile, as the British drug maker gets closer to completing its planned buyout of Alexion Pharmaceuticals in the third quarter, "we see the strategic merits being more widely appreciated. A multitude of pipeline catalysts and new launches should aid a recovery of the shares."

Among the merits, AstraZeneca's deal will allow it to enter into the rare diseases market with a roughly $6 billion established franchise.

Also, Alexion sales should facilitate greater research and development investment, "delivering a favourable return for shareholders. We believe this benefit of the acquisition is widely overlooked," said Jefferies. AstraZeneca's current R&D budget is less than $6 billion per year, which represents about 21% of sales "but in absolute terms only just over half of Roche's spend."

Jefferies said its preliminary pro-forma model suggests the Alexion acquisition is accretive by at least 15% to 2022 estimated per-share earnings. For revenue, it forecast at least a 9% compound annual growth rate in an AstraZeneca-Alexion tie-up.

"We do not envisage regulatory issues given no commercial overlap and minimal pipeline similarities," said Jefferies.