We use a DCF model with earnings forecasts for 10 years to derive our target prices for the companies in our coverage. We assume a 2% risk-free rate, a 10% equity-risk premium, and a terminal growth rate of 0% after seven years. We forecast betas and tax rates for each company and derive WACC.
For Takeda, we assume a beta of 1.15, on the high side to reflect imminent patent expiries, investors’ wariness of earnings risks, and the company's weak financial position. We use a tax rate of 22% and estimate WACC at 6.7%. As a result, we derive a target price of ¥4,600.

We see the following potential risks to our target price: 1) sales of Entyvio, Takhzyro, plasma derivatives, and other mainstay products coming in below our expectations; 2) drug candidate failures; 3) deterioration in emerging market operations; 4) a weakening of the domestic sales force; 5) changes in dividend policies as the result of earnings deterioration; and 6) the emergence of quality issues. If these factors manifest themselves differently than we have anticipated, the share price may vary from our target price.