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AstraZeneca Plc (AZN) is facing a number of challenges, most notably from generic competition to Toprol-XL and Nexium. Management is determined to grow earnings through a combination of expanding the topline and cost cutting. This is in contrast to many of large-cap pharma companies, which are wringing out earnings solely through significant cost-cutting strategies, but with virtually no revenue growth.
While Crestor, Seroquel and Symbicort will continue to add substantially to the topline, company-wide revenue growth will slow considerably over the next few years. Management's productivity and synergy initiatives should benefit operating margins and earnings in the next few years which should help grow EPS faster than revenues.
Although we believe the company is faced with some significant hurdles in the next few years, we think that AstraZeneca offers a compelling case for growth beyond our current expectations. We think the shares trade a relatively attractive level and rate AstraZeneca a Hold with a $47 price target, representing 9.4x our 2008 EPS forecast of $5.02. This is inline with the large-cap pharmaceutical peer-group average of 9.2x.
Jason Napodano, CFA, contributed to this report.
Read the full analyst report on AZN
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