We
are
holding
steady
to
our
£124/$78
fair
value
estimates
(local/ADR)
for
AstraZeneca
(AZN)
following
second-quarter
results
that
were
largely
in
line
with
our
expectations.
However,
the
higher
operating
expenses
in
the
quarter
are
likely
weighing
on
shares,
as
the
market
was
potentially
expecting
better
operating
margins.
We
expect
margin
improvement
over
the
next
three
years
as
the
firm
leverages
several
recent
product
launches.
In
the
quarter,
total
sales
increased
17%
operationally
with
broad
support
across
the
firm’s
portfolio.
However,
we
expect
growth
will
decelerate
as
generic
pressures
increase
on
respiratory
drug
Symbicort
and
cardiometabolic
drug
Farxiga
over
the
next
18
months.
As
the
firm’s
leading
drug,
the
generic
headwinds
on
Farxiga
will
likely
drive
total
sales
growth
toward
mid-single
digits
by
late
2025.
On
the
positive
side,
the
cancer
division
continues
to
post
strong
gains
(up
19%).
New
indications
and
recent
drug
launches
in
the
group
should
continue
to
drive
steady
gains.
However,
we
are
increasingly
concerned
about
the
competitive
threat
from
Johnson
&
Johnson’s
Rybrevant/Lazertinib
combination
against
Astra’s
largest
cancer
drug
Tagrisso
in
lung
cancer.
Nevertheless,
Astra
holds
a
diverse
portfolio
of
cancer
drugs
that
should
support
long-term
growth
and
reinforce
its
wide
moat.
Astra
also
reiterated
its
long-term
guidance
of
$80
billion
in
risk
adjusted
sales
by
2030
(excluding
acquisitions)
and
core
operating
margins
in
the
mid-30s
by
2026.
While
we
expect
the
firm
will
reach
the
margin
goals,
we
remain
sceptical
of
the
2030
sales
target.
We
believe
Astra
is
likely
more
bullish
on
its
pipeline
than
our
expectations.
In
particular,
Astra
holds
many
mid-stage
cancer
drugs
that
hold
strong
launch
trajectory
potential
if
late-stage
data
is
successful.
If
Astra
can
achieve
the
long-term
sales
guidance,
there
is
significant
upside
to
our
fair
value.
Key
Morningstar
Metrics
for
AstraZeneca
• Fair
Value
Estimate:
£124.00
• Morningstar
Rating:
★★★
•
Morningstar Economic
Moat
Rating:
Wide
•
Morningstar Uncertainty
Rating:
Medium
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