AZN: In-Market Oncology And U.S. Drug Pricing Will Shape Long-Term Performance

Key Takeaways

• Strong late-stage drug pipeline, emerging market expansion, and investment in transformative technologies are set to drive sustained, above-industry revenue growth and earnings expansion.
  
• Focus on cost discipline and operational efficiencies is expected to enhance margins, cash flow generation, and long-term earnings resilience.
  
• Heavy dependence on blockbuster drugs and exposure to price controls, biosimilar competition, and regulatory challenges threatens long-term profitability and margin stability despite a strong R&D pipeline.

Catalysts

A biopharmaceutical company, focuses on the discovery, development, manufacture, and commercialization of prescription medicines.

• 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 over the next several years-management estimates these new medicines could generate $10+ billion in peak risk-adjusted revenue, directly supporting both long-term high-margin revenue growth and future earnings expansion.
  
• AstraZeneca's strategic expansion and success in emerging markets (including China, Latin America, and Southeast Asia), alongside double-digit growth in key geographies, positions the company to capitalize on rising healthcare demand and spending in these regions, which should drive sustained above-industry average revenue growth.
  
• Ongoing investments in transformative technologies (such as next-generation ADCs, bispecific antibodies, mRNA platforms, and AI/digital-enabled clinical trial efficiencies) are expected to accelerate drug development cycles, enable precision medicine launches, and support higher net margins due to more efficient R&D and premium pricing potential.
  
• The company's focus on volume-driving therapies aligned with global demographic shifts-namely the increasing burden of chronic and age-related diseases-expands AstraZeneca's long-term addressable market, underpinning consistent, volume-based revenue increases and improved earnings resilience through the next decade.
  
• Operational leverage achieved from disciplined SG&A spending, global cost efficiencies, and productivity improvements-despite substantial R&D investment-should support ongoing core margin improvement and drive stronger cash flow generation, reinforcing both earnings quality and potential capital return.

AstraZeneca Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AstraZeneca's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 20.7% in 3 years time.
• Analysts expect earnings to reach $13.9 billion (and earnings per share of $9.43) by about September 2028, up from $8.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $15.8 billion in earnings, and the most bearish expecting $10.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.9x on those 2028 earnings, down from 30.7x today. This future PE is greater than the current PE for the GB Pharmaceuticals industry at 21.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

AstraZeneca Future Earnings Per Share Growth

Risks

• AstraZeneca anticipates core gross margin will decline by around 60 to 70 basis points in 2025, driven by factors such as increased biosimilar competition (e.g., Soliris), changes from government healthcare policies (Medicare Part D redesign), and increased profit sharing with partners, which could pressure net margins and overall profitability in the medium and long term.
  
• The company faces growing exposure to government-driven price controls and volume-based procurement in major markets like China (e.g., expected VBP for Farxiga), which could lead to material revenue declines for certain blockbuster drugs and threaten AstraZeneca's pricing power over time.
  
• Heavy reliance on a set of key blockbuster drugs (Tagrisso, Imfinzi, Enhertu, Farxiga, Ultomiris) exposes AstraZeneca to significant patent expiry and biosimilar/generic competition risks, posing threats to long-term revenue growth and causing potential margin compression as exclusivity ends.
  
• Despite a catalyst-rich R&D pipeline, AstraZeneca's core R&D spend remains high (projected to stay in the low 20s percentage range of total revenue), creating a risk that slowed pipeline productivity, clinical trial failures, or delayed regulatory approvals could reduce investor confidence and stall earnings growth if new launches do not offset losses from patent expiries.
  
• Escalating regulatory and reimbursement challenges-including potential U.S. and global pricing reforms, ongoing scrutiny towards industry ESG (environmental, social, governance) practices, and evolving competitive threats from both established pharma and innovative biotech/tech entrants-could increase operational costs, erode net margins, and constrain future earnings.

Valuation

• The analysts have a consensus price target of £136.49 for AstraZeneca based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £180.93, and the most bearish reporting a price target of just £108.24.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $67.3 billion, earnings will come to $13.9 billion, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of £122.1, the analyst price target of £136.49 is 10.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.