AstraZeneca (LSE: AZN) shares have benefited from one of the most impressive long‑term reinventions in the FTSE 100.
A decade ago, it was a lumbering, patent‑cliff‑ridden pharma giant. Today it is a high‑growth, oncology‑driven, research‑led machine with global scale and a pipeline that most rivals would kill for.
And from 8 April 2021 to now, a £20,000 holding in the stock would have grown into£44,108 once dividends are included. That is a share price gain of £21,143, plus another £2,965 in dividends, giving a total return of around 121%.
That said, I believe there is still a huge gap remaining between the stock’s price and its ‘fair value’. And experience has shown that share prices tend to converge to this fair value over time.
So, what sort of potential price gains are we looking at?
Strong growth momentum
A risk to AstraZeneca is any delay in the ramp‑up of key oncology launches that could squeeze its earnings. And it is ultimately growth in these that power any firm’s share price higher. Another is any regulatory or clinical setbacks across its late‑stage pipeline that could delay key products’ path to market.
However, analysts forecast that the company’s earnings will grow a very robust 13% a year over the medium term. And these projections look well supported by recent results.
Reported earnings per share (EPS) soared 45% year on year to $6.60 (£5), reflecting strong operating leverage and lower impairment charges. Revenue jumped 9%to $58.7bn, driven by Oncology, Cardiovascular, Renal & Metabolism, Respiratory & Immunology, and Rare Disease. And operating profit rose 9% to $18.49bn, powered by strong performances from Tagrisso, Imfinzi, Calquence and the accelerating antibody-drug cancer medicines portfolio.
Looking ahead, management expects mid‑to‑high single‑digit revenue growth and low double‑digit core EPS growth in 2026. AstraZeneca also reiterated its forecast that it will hit its 2030 target of $80bn in annual revenue.
Where ‘should’ the shares be trading?
In my experience as a former investment bank trader, discounted cash flow (DCF) analysis is the optimal way to ascertain a share’s fair value.
It does this by projecting an underlying business’s future cash flows and then ‘discounting’ them back to today. The more uncertain those earnings are, the higher the return investors demand and the greater the discount applied.
Some analysts’ DCF modelling is more bearish than mine due to the inputs used. However, based on my DCF assumptions — including a 7.2% discount rate — AstraZeneca shares are 38% undervalued at their current £149.07 price.
Therefore, their fair value could secretly be close to £240.44 a share.
And because stocks can trade to their fair value over time, this price-to-value gap suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.
My investment view
I believe the market is still underestimating AstraZeneca’s earnings power, driven by the rapid shift into a higher‑growth, innovation‑led business.
With analysts expecting double‑digit profit growth and management guiding to sustained expansion through to 2030, it looks much stronger than the share price implies.
So, I will be adding to my holding in the firm shortly and think it worthy of other investors’ attention.
I also have my eye on other high-growth stocks that look seriously undervalued.
