Health and Healthcare

Top Analyst Thinks Big Pharmaceutical Stocks Will Outperform the Rest of 2016

Lee Jackson

Published: July 26, 2016 8:35 am

Last Updated: January 13, 2020 5:17 am

Ever since the Hillary Clinton high drug price tweet in September of last year, the major pharmaceuticals and biotechs have struggled, and while performance has improved over the past quarter, both areas have still lagged. While it’s possible the Democrats retain the White House, the Republicans look to hold Congress, and so many on Wall Street think that big drug pricing initiatives are unlikely after the election in November.

In a new research report, SunTrust Robinson Humphrey analysts feel that the major pharmaceutical companies will outperform the rest of the year, and they cite new products, accelerating long-term growth, attractive dividends and solid performance in a rising-rate environment as positives for the sector. Four top stocks are favored at the firm.

AbbVie

This stock is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.

The patent board recently instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected in 12 months. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock.

AbbVie investors are paid an outstanding 3.54% dividend. The SunTrust price target for the stock is $85, and the Wall Street consensus target is $70.17. The stock closed Monday at $64.32 per share.

Bristol-Myers Squibb

This top company remains a favorite at SunTrust. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.

The company recently announced that the FDA has approved Opdivo for the treatment of classical Hodgkin lymphoma in patients who have relapsed or progressed after autologous hematopoietic stem cell transplantation and post-transplantation Adcetris. The accelerated approval of Opdivo in the cHL indication was based on the overall response rate. This marks the very first PD-1 inhibitor to be approved for a hematological malignancy.

Bristol-Myers shareholders are paid a 2.02% dividend. SunTrust has a target price of $86, and the consensus target is $77. The shares closed most recently at $75.56.
Eli Lilly

This is another stock with substantial upside potential. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.

The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.

The company reported second-quarter results that beat the consensus numbers on the top and bottom lines and reiterated its full-year guidance. Like many on Wall Street, the SunTrust team is very focused on the company’s outstanding late-stage product pipeline, which many view as very undervalued.

Shareholders are paid a solid 2.5% dividend. The $107 SunTrust price target is well above the consensus target posted at $95.90, as well as Monday’s closing share price of $81.98.

Shire

This is one of the top picks on Wall Street in specialty pharma. Shire PLC (NASDAQ: SHPG) develops, licenses, manufactures, markets, distributes and sells pharmaceutical products. It offers various products for the treatment of attention deficit hyperactivity disorder. The company also focuses on the development of resources projects in various therapeutic areas, including rare diseases, neuroscience, ophthalmics, hematology and gastrointestinal disorders, as well as early development projects, primarily on rare diseases. Shire markets its products through wholesalers and pharmacies.

Many analysts were perplexed by the somewhat mixed market reaction to the Baxalta bid. Baxalta was spun off from Baxter last year, and the market correction in the fall provided investors a compelling opportunity to refocus on company’s true intrinsic value. The Baxalta acquisition could produce $13 billion in revenues for Shire’s rare disease portfolio by 2020, according to Bloomberg Intelligence analysis. Sales at the combined entity are projected to reach $20 billion.

Top analysts have adjusted their numbers to account for the completion of the Baxalta transaction and expect high digit accretion, and they raised the long-term earnings per share growth estimates. They even think top and bottom line synergies could be higher and the lifitegrast launch could be a positive catalyst.

Shire shareholders are paid a small 0.41% dividend. The SunTrust price target for its top pick is $298, while the consensus price objective is lower at $245.211. The shares closed Monday at $192.29.

With the market pricey, investors may want to buy partial positions now and see if we don’t get a summer sell-off. All these top companies represent outstanding long-term holdings in a growth portfolio.