AstraZeneca’s (LSE: AZN) share price looks to me to be anchored to an outdated view of its long-term earnings potential. This appears to reflect a mature, late-cycle pharmaceutical firm reliant on a handful of ageing blockbusters.
But the reality is that the firm delivers strong growth across multiple franchises, supported by a visibly productive and expanding late-stage pipeline. The difference between perception and reality leaves it trading at a significant discount to its ‘fair value’.
So, how high can the shares go?
Perception versus reality
AstraZeneca’s recent 2025 results show anything but the ageing pharma giant the market still seems to be pricing in.
It delivered 8% year on year revenue growth to $58.74bn (£43.13bn), and a 9% rise in operating profit to $18.49bn. This pushed earnings per share up 11% to $9.16.
These numbers were powered especially by oncology sales, which jumped 13% to $25.6bn. This reflected strong performances from Tagrisso, Imfinzi, Calquence and AstraZeneca’s accelerating antibody-drug cancer medicines portfolio. Meanwhile, BioPharma revenue increased 5% to $23bn, and Rare Disease medicines sales rose 3% to $9.1bn.
Even more positively for the future were 16 positive Phase 3 studies in 2025, leading to 16 ‘blockbuster’ medicines. Phase 3 readouts are the final testing stage for a new drug before it goes for final regulatory approval. And a blockbuster is defined as a medicine that generates over $1bn in annual global sales.
A risk to continued strong earnings growth would be multiple failures in this pipeline process. Medicines are extremely costly to develop, so several failures could dent the firm’s earnings over time.
However, in the 2025 results release, AstraZeneca reiterated that it expects to hit its 2030 target of $80bn in annual revenue. The consensus forecast of analysts is that its earnings (‘profits’) will rise by an annual average of 12% over the medium-term (to end-2028) at minimum.
Where should it be priced?
To nail down AstraZeneca’s true worth, I ran a discounted cash flow (DCF) analysis. This estimates any share’s fair value by projecting the future cash flows of the underlying business. It then discounts them back to today, using a rate reflecting the risk of owning the shares.
In AstraZeneca’s case, I used a discount rate of 7.2% and a perpetual growth rate of 3% (the five-year average UK 10-year gilt yield). Other DCF models may use different assumptions, which could produce lower (or higher) valuations.
However, my DCF modelling suggests AstraZeneca shares are 34% undervalued at their current £150.89 price.
That implies a fair value of £228.62 — and the gap between this and its current price is critical for long-term investors. This is because asset prices tend to converge to their fair value in the long run.
So, in this case, it suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.
My investment view
AstraZeneca’s latest results and pipeline progress suggest its growth profile remains stronger than the market assumes.
My DCF analysis indicates a sizeable valuation gap that long-term investors may find attractive.
So I, for one, will be adding to my holding in the stock very shortly.
