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Is AstraZeneca (LSE:AZN) Trading At A Discount After Pipeline Wins?

Simply Wall St · 16h ago

AstraZeneca has ridden a strong multi year run, underpinned by a busy oncology pipeline and fresh late stage trial wins. This raises a simple question for anyone looking at the stock today: Is the current share price still aligned with the cash the business is expected to generate over time, or has sentiment moved ahead of those cash flows?

  • Over the past 5 years AstraZeneca has delivered a 65.9% total return, which puts real weight on whether today's valuation is firmly supported by the cash its treatments can produce.
  • Recent positive data for cancer and respiratory drugs such as Enhertu, Tagrisso and tozorakimab can influence assumptions about future revenue durability, margins and the timing of cash inflows that sit behind any cash flow based valuation.
  • What if you looked at AstraZeneca through its earnings instead? See what AstraZeneca's 25.1x P/E says about the price.

The issue now is whether AstraZeneca's current market price is justified by its cash flows when assessed through a Discounted Cash Flow (DCF) view of its intrinsic value.

If AstraZeneca has you thinking about how oncology pipelines and late stage data feed into long term cash generation, a focused screen of 7 high quality undervalued stocks is a useful next research step.

Is AstraZeneca a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model here focuses on the cash AstraZeneca can return to shareholders over time. Latest twelve month free cash flow sits at about US$7.6b, and the projections used in the model assume growing free cash flow through the next decade rather than a flat or shrinking profile.

Those rising projections, when discounted back and compared with the current £126.72 share price, result in DCF estimates that sit substantially above where the stock trades today. Because Enhertu’s recent Phase III success in HER2 mutant lung cancer supports the idea of future oncology cash flows rather than undermining them, the model outcome and the ongoing drug news are pointing in the same direction. Find out what AstraZeneca could be worth using our Discounted Cash Flow (DCF) estimate.

The AstraZeneca Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for AstraZeneca pick up where the DCF puzzle leaves off. They spell out which paths for AstraZeneca's revenue growth, profitability and earnings power would need to play out for the stock to be worth meaningfully more or less than it trades for today on the market. Each framework treats fair value as a hypothesis about the business that you can watch over time, rather than a one off snapshot, and they sit on Simply Wall St's Community page.

Community views on AstraZeneca are now split between one group that sees more upside in the pipeline and another that worries about what could cap that story.

Bull case: 20% undervalued

"The company's robust and diversified late-stage pipeline, particularly in oncology, rare diseases, and cardiovascular/metabolic therapies, is set to deliver multiple blockbuster launches..."

Discover why this Narrative puts AstraZeneca at 20% undervalued.

Bear case: 7% overvalued

"The looming expiration of patents on key blockbuster drugs like Tagrisso, Farxiga, and Imfinzi exposes AstraZeneca to biosimilar and generic competition that is almost certain to erode high-margin revenue streams..."

Explore why this Narrative puts AstraZeneca at 7% overvalued.

Before acting on AstraZeneca's valuation, there is one more factor to weigh

Beyond the cash flow work and competing narratives around AstraZeneca, internal checks have highlighted specific concerns that could matter to anyone sizing up the risk side of the story. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.