Credit Suisse analyst Vamil Divan has released an outlook on the pharmaceutical sector. While the weighting for the sector is Market Weight, there are some positives in the call. The firm’s initial look is that it’s time for the sector to catch its breath after the first quarter and before the next wave of catalysts.

The firm sees the large-cap pharma sector dividing itself into three distinct groups: those with a clear upside due to new products or underappreciated product pipelines; those whose valuation is their primary attribute; and those with balanced risk/reward outlooks ahead of “some important catalysts.”

The first group includes Merck & Co. Inc. (NYSE: MRK), Eli Lilly and Co. (NYSE: LLY) and Allergan PLC (NYSE: AGN). The second group includes Pfizer Inc. (NYSE: PFE) and Teva Pharmaceuticals International Ltd. (NYSE: TEVA). The third group comprises Bristol-Myers Squibb Co. (NYSE: BMY) and AbbVie Inc. (NYSE: ABBV).

Divan had these comments on Merck, Eli Lilly and Allergan, its top picks:

Merck (and Lilly) will receive a boost from what we expect to be very rapid uptake of Keytruda in combination with Alimta in the large 1st line non-squamous, non-small lung cancer market. … Since we upgraded MRK in Aug 2016 we have been waiting for possible upside from other pipeline assets or through business development. Unfortunately we are still waiting, but we are willing to give them a little more time while Keytruda continues to carry things. For Lilly Friday’s galcanezumab news helps illustrate the diversity of their new product story. … Beyond having top line growth that we currently expect to be near the top of its sector, we also expect Lilly to continue to deliver on its expense management goals, driving significant margin expansion possibilities over the next 5+ years. Allergan’s stock has given back ~$15 over the last couple weeks, and we agree the near-term catalyst calendar is relatively limited. We continue to be impressed by the growth of their aesthetics business (anchored by Botox and fillers), however, and also see significant potential in the pipeline ….

Credit Suisse’s view on Pfizer and Teva is more restrained:

Pfizer and Teva offer compelling valuations, but we see limited excitement otherwise. Both … trade at discounts, and that is enough for us to maintain our Outperform ratings on both stocks for now. For Pfizer, questions around Xtandi are now added on top of an Ibrance franchise that is slowing and a Prevnar franchise in modest decline. … For Teva we wait for a full-time CEO to be appointed and a clearer understanding of their long-term strategy. Positive Phase 3 data from fremanezumab (anti-CGRP) next month could at least provide some near-term reason for excitement and upside while we wait for more longer-term clarity.

Finally, Bristol-Myers Squibb and AbbVie appear balanced, according to Credit Suisse:

Bristol-Myers Squibb will likely move in conjunction with [AstraZeneca] following the release of topline MYSTIC data. … Continued M&A speculation will likely provide downside support even in the face of negative news flow so if the stock slides to the high $40s/low $50s we would get more constructive on the name. We are surprised by the strength in ABBV over the past month as we head into the IPR decision on the Humira ‘135 patent. Following that decision (expected on or before May 17) we may have a little better understanding of Humira’s longevity in the US, but key for us also is additional insights on major pipeline assets such as Rova-T and risankizumab, both of which will generate important data later this year.

Here’s a chart from Credit Suisse that outlines their picks:

Merck traded flat Monday morning, at $63.57 in a 52-week range of $53.59 to $66.80. The consensus 12-month price target is $69.53.

Eli Lilly stock traded up less than 0.1%, at $80.23 in a 52-week range of $64.18 to $86.72. The consensus price target is $89.10.

Shares of Allergan traded down about 0.8% to $228.98, in a 52-week range of $184.50 to $261.27. The consensus price target is $274.91.

Pfizer traded up about 0.3%, at $33.12 in a 52-week range of $29.83 to $37.39. The consensus price target is $37.89.

Teva’s stock traded up about 1% to $32.20, in a 52-week range of $30.20 to $56.44. The consensus calls for a 12-month target of $37.75.

Bristol-Myers Squibb traded up about 0.1%, at $55.09 in a 52-week range of $46.01 to $77.12. The 12-month price target is $57.18.

AbbVie traded up about 0.4%, at $66.31 in a 52-week range of $55.06 to $68.12. The consensus 12-month price target is $71.13.

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