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AstraZeneca and GlaxoSmithKline share price targets tweaked and on Jefferies' 'buy' ahead of Q1 results season for the druggies

The broker is still enamoured of the UK big hitters but doesn't expect it to be plain sailing for either
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Happy pills, happier times for Britain's big two pill pushers

The US broker Jefferies has tweaked its price targets for AstraZeneca PLC (LON:AZN) and GlaxoSmithKline PLC (LON:GSK) ahead of first-quarter results, while maintaining its positive stance on the stocks of both businesses.

AZ’s valuation moves to £56 a share, around £6 higher than the current share price, while GSK’s rises to £16, which provides around £2 headroom from current levels. Both remain on Jefferies’ ‘buy’ list.

Its top pick in the sector is Roche (VTX:ROG) with an estimated total return of 35%.

Sales slow, EPS set to be hit 

Looking ahead to the drug sector’s round of first-quarter results announcements, Jefferies expects AZ’s sales to be down 1% at US$5.34bn and below consensus, which is US$5.5bn.

The reason for the top line stall, according to Jefferies, is a reduction in “externalisation and other operating income contributions”.

The company’s externalisation strategy has seen AZ generate a growing slug of its revenues from selling the rights to certain drugs. It then receives an upfront payment and fees on the product or drug candidate hitting certain milestones.

According to Jefferies, AZ’s earnings per share are likely to be down by 49% in the first-quarter to 50 US cents, again below consensus, which is around 86 US cents.

Foreign exchange headwinds

JP Morgan, in a separate note in which it rates AZ shares ‘overweight’ with a £55 price target, said it expects core EPS to be 55 cents.

Foreign exchange headwinds are forecast by Jefferies to exert a drag on first-quarter sales from rival GSK, which is at least in growth mode. Jefferies expects revenues to be up 4% at US$10.33bn (£7.23bn). Adjusted EPS is set to be more-or-less steady at 24.7p.

AZ’s first-quarter results are scheduled for May 18, while GSK’s numbers are on April 25.

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