Health and Healthcare

Top Dividend Pharmaceutical Stocks Safe Bet for Rest of 2017

Lee Jackson

Published: April 17, 2017 10:00 am

Last Updated: January 12, 2020 12:56 pm

One thing that crept on the radar screen last week is that after eight years of a bull market, five of which are of the secular variety, after the S&P 500 broke through the 1,500 level in 2013 for a clear breakout to new highs, volatility finally is creeping back in. With interest rates once again dropping as the geopolitical worries ratchet up, investors are concerned about owning good stocks and receiving dependable dividends. One place that looks very good now is pharmaceuticals.

After being under fire for some time, many investors are starting to look at big cap pharmaceutical stocks as almost a safe haven, and with the potential for any big changes to drug pricing at least in the near-future very limited, the sector offers some of the best value.

A new Jefferies report highlights top global picks, and here we focus on those and other domestic stocks that are rated Buy.

AbbVie

This stock is one of the top pharmaceutical stocks picks across Wall Street and is the number one global pick at Jefferies. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. Last year, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The problem with Humira is that biosimilars and generics are itching to enter the market. The Jefferies report said this:

Consensus models almost a “worst case” scenario of a 2018/19 biosimilar entry in the US, where we assume 2022. We see $2 to $4 downside on a discounted cash basis for a worst case mid-2018 launch. We see up to $15 upside if biosimilars are delayed until 2022. The ‘135 dosing patent is not the only barrier to US biosimilars, as many other blocking patents are currently in force. However, if upheld, it implies we are unlikely to see US biosimilars prior to the second half of 2022.

AbbVie shareholders receive a 4% dividend. The Jefferies price target for the stock is a whopping $90, while the Wall Street consensus target is at $71. Shares closed most recently at $64.13.

Abbott Laboratories

This top pharmaceutical stock has very solid growth potential and income, and the shares are down over 5% since early March. Abbott Laboratories (NYSE: ABT) is a leading diversified global health care company that develops, manufactures and markets branded generics, medical devices, nutritional products and diagnostic solutions. It offers a diversified large cap play as earnings are split between five well-positioned business segments: Nutritionals (31% of revenues), Vascular (13%), Generic Pharmaceuticals (20%) and Diagnostics (25.5%) and Diabetes (10.5%).

The company announced last Friday it has agreed to buy Alere at a lower price than it had previously offered, after raising concerns about the accuracy of various representations, warranties and covenants made by Alere in the earlier agreement. Abbott will now pay $51 per share, compared with its earlier offer of $56.

Abbott investors receive a 2.48% dividend. Jefferies has a $50 price target, and the consensus target is $47.23. Shares closed most recently at $42.40. The stock goes ex-dividend on April 11.

Bristol-Myers Squibb

This top company remains a favorite at Jefferies and ranks as the fourth top global pick. 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 Biogen will pay $300 million upfront to Bristol-Myers to license a palsy drug with a $2 billion market opportunity and the potential to use that to treat Alzheimer’s. The company will pay a total of $410 million in milestone payments and a tiered double-digit royalty to license a drug known only as BMS-986168. The drug just completed Phase 1 testing in progressive supranuclear palsy.

Shareholders receive a 2.95% dividend. The $65 Jefferies price objective compares with the consensus target price of $55.38 and the most recent close at $52.83.

Eli Lilly

This stock also has 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.

Last Friday, the U.S. Food and Drug Administration (FDA) declined to approve a new drug for rheumatoid arthritis made by Eli Lilly and partner Incyte. The FDA indicated that additional clinical data was needed to determine the most appropriate doses of the drug, Olumiant (baricitinib) and to further characterize safety concerns across treatment arms. The request for additional data possibly means more than a year’s delay for this important product for both companies, and it represents a break for other drugmakers who were expected to face tough competition from Olumiant.

Investors may want to watch the shares this week and see how the market reacts as they were down more than 4% Monday morning. Eli Lilly has been on a solid run since late last year, and a back-up in the share price could be just the ticket or investors looking to purchase shares.

Shareholders receive a 2.42% dividend. The Jefferies price objective is $97. The consensus target is $89.05, and shares closed most recently at $85.88.

Zoetis

This is the fifth ranked top global pick at Jefferies. Zoetis Inc. (NYSE: ZTS) engages in the discovery, development, manufacture and commercialization of animal health medicines and vaccines for livestock and companion animals in the United States and internationally.

The company offers anti-infectives that prevent, kill or slow the growth of bacteria, fungi, or protozoa; vaccines, which are biological preparations to prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response; and parasiticides that prevent or eliminate external and internal parasites, such as fleas, ticks and worms.

It also provides medicated feed additives that offer medicines to livestock; veterinarian solutions for anesthesia, pain management and the diagnosis of diabetes; and other pharmaceutical products, including pain and sedation, oncology, antiemetic, allergy and dermatology, and reproductive products. In addition, it offers other product categories comprising nutritionals and agribusiness services, as well as products and services in complementary areas consisting of biodevices, diagnostics and genetics.

Shareholders receive a 0.8% dividend. The $65 Jefferies price target is above the consensus target of $59.86. The shares closed at $53.10.

Despite the fact that the president wants to see lower drug prices, these things move slowly, and with the desire to replace Obamacare, the tax reform pledges and many other agenda items in the forefront, it is a back-burner item for now. Plus, with a nervous market, pharmaceuticals are always seen as a safer haven for investors.