Investing.com — Shares of AstraZeneca (LON:AZN) traded higher on Wednesday after UBS revised its recommendation for the pharmaceutical giant’s stock to "neutral" from "sell."
This change in outlook comes amid a 24% decline in the company’s share value over the last three months, driven by uncertainties surrounding ongoing Chinese government investigations and setbacks in key drug trials.
Analysts at UBS maintained their price target for AstraZeneca at 11,300p, expressing cautious optimism about the company’s ability to navigate current challenges.
They noted that while China-related issues, including allegations of insurance fraud and illegal drug importation, pose risks, recent regulatory approvals in the country suggest continued long-term support for the company's operations there.
UBS also flagged that AstraZeneca’s China business accounts for 13% of its sales and 10% of its earnings, underscoring its importance despite the ongoing scrutiny.
The reassessment by UBS reflects a tempered perspective on AstraZeneca’s drug pipeline. In particular, the brokerage adjusted its expectations for the lung cancer drug Dato-DXd, focusing on a narrower subset of patients with EGFR-mutant lung cancer.
While this limits the drug’s peak sales potential, UBS analysts see the pivot as a positive step for AstraZeneca’s positioning in the competitive oncology market.
Despite these adjustments, UBS remains measured about AstraZeneca’s prospects.
Key factors tempering optimism include the uncertain timeline for resolving issues in China, potential financial impacts of U.S. Medicare reforms, and higher projected research and development expenditures.
Additionally, UBS forecasts remain below market consensus for the company’s 2025 and 2026 earnings, reflecting a conservative view of growth and profitability.
UBS analysts acknowledged the company’s robust drug pipeline, which includes promising late-stage assets that could bolster long-term growth.
However, they emphasized the need for clarity on several unresolved risks before adopting a more bullish stance on the stock.
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