Is Eisai (TSE:4523) Cheap After China Approved At Home Leqembi Dosing?

Eisai (TSE:4523) is back in focus after China’s National Medical Products Administration approved the Leqembi subcutaneous autoinjector as an initiation treatment for early Alzheimer’s disease, opening a new at home dosing option.

The China approval arrives after a recent string of Leqembi related milestones, including progress on subcutaneous dosing in the US and a reimbursement recommendation in Canada. It comes as Eisai’s share price return is positive over the past quarter, while the 5 year total shareholder return remains significantly negative, suggesting that recent momentum is building from a weak longer term base.

Spot 9 healthcare AI stocks that, like Eisai, are working at the intersection of cutting edge treatment approaches and large unmet medical needs in neurology and beyond.

Eisai’s recent swing back into positive territory over the past quarter comes after years of weak total returns. Is this the start of a longer catch up to its implied value, or has most of the upside already played out in the stock?

Most Popular Narrative: 7.3% Overvalued

The most followed valuation narrative currently places Eisai’s fair value at ¥4,482, which is below the last close of ¥4,811. This sets up a mildly cautious gap between price and implied worth.

The analysts have a consensus price target of ¥4,482.14 for Eisai 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 ¥5,500.0, and the most bearish reporting a price target of just ¥3,200.0.

Read the complete narrative. Read the complete narrative.

Want to see what sits behind that spread between bullish and bearish views? The narrative refers to a specific revenue glide path, a step up in margins and a premium earnings multiple that is more typical of faster growing sectors. Curious which assumptions would need to hold for Eisai to fit that profile while keeping the current valuation in check?

Result: Fair Value of ¥4,482 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Eisai’s reliance on a small group of key drugs, along with the pressure on Alzheimer’s pricing, could still challenge that fair value narrative.

Find out about the key risks to this Eisai narrative.

Another View on Eisai’s Valuation

The narrative above leans on analyst targets and earnings forecasts to suggest Eisai is mildly overvalued around ¥4,482 per share. Our DCF model comes to a very different conclusion. It indicates Eisai is trading about 36.6% below an estimated future cash flow value of ¥7,590, which raises a clear question. Are current profits too weak to justify today’s P/E, or is the market underestimating the cash flows that analysts think are coming?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Eisai for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 27 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals around Eisai’s value, this is a moment to move quickly and test the story against your own view of the data. To balance the cautious and optimistic angles, review the 2 key rewards and 1 important warning sign

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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