Health and Healthcare

4 Large Cap Pharmaceutical Stocks That Could Post Big Earnings

Lee Jackson

Published: October 19, 2017 8:30 am

Last Updated: January 12, 2020 7:02 am

With a market that has become as expensive as this one, there is one key driver that can keep things going, and that’s positive earnings or guidance for the next quarter and 2018. One area that has done well, but has been overshadowed this year by technology is health care, and especially the large cap pharmaceutical companies. While hardly dirt cheap, they offer a defensive posture, dividends and solid growth potential.

A new SunTrust Robinson Humphrey research report notes that while Hurricane Maria may have had some effect on facilities located in Puerto Rico, the top companies are prepared for such disasters. The report noted this:

We spoke with the six major biopharmas, which reported only mild-to-moderate damage to their facilities. The concern is manufacturing stoppages in late September due to loss of power, the inability of workers to get to the facilities, and/or the inability of the facilities to communicate with corporate headquarters. Each major pharma has purposeful redundancies built into their global supply chain as well as insurance policies to cover damage to their respective facilities.

The SunTrust analysts are positive in front of earnings on four large cap leaders, all which are rated Buy.

AbbVie

This is one of the top 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 develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia, and neuroscience.

One of the biggest concerns with AbbVie is what might eventually 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’s Inter Partes Review against the Humira ‘135 patent. The problem with Humira is that biosimilars and generics are itching to enter the market.

The SunTrust numbers are above the Wall Street estimates for the quarter, and the report noted this:

AbbVie launched Mavyret, the new pan-genotypic Hepatitis C (HCV) regimen, in the US in early August. Mavyret is priced competitively with Zepatier and Harvoni on a net basis, with parity access in important commercial insurance plans like Express Scripts. Thanks to early competitive access in some commercial plans as well as government channels, Mavyret has already captured >5% share of the market by volume among the top HCV assets.

Shareholders receive a 2.9% dividend. The SunTrust price target for the stock is $95, and the Wall Street consensus target is $92.677. The shares closed Wednesday at $96.04.

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.

The SunTrust team is above Wall Street estimates on this one too, but they noted this on expectations for the second half of 2017:

We maintained 2017 estimated total revenue & earnings-per-share unchanged; we expect gross margins in the second half of 2017 to be significantly weaker than the first half as Liily contends with loss of exclusivity on Strattera & Effient and a gross margin headwind from currency (tailwind to revenue) from a weaker dollar. Out of 14 production and distribution sites in US, Lilly’s two sites in Puerto Rico suffered “minimal damages” due to the hurricane. However, the company indicated to us that they don’t see any adverse impact on operations from Regulatory submissions.

Shareholders receive a 2.43% dividend. The $96 SunTrust price objective compares with the consensus target of $91.05. Shares closed trading on Wednesday at $85.73.

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Merck

This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.

The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products.

SunTrust is slightly below the Wall Street estimates and noted this:

We project third quarter earnings-per-share of $1.00 (-7% YoY) versus Wall Street’s $1.03, but note that there is some variability to our estimates from the malware attack that disrupted Merck’s operations on June 27th. The company indicated that it didn’t have email access for the subsequent week, but was able to engage customers & ship product. We view our third quarter sales and cost estimates as conservative, as we account for operational disruptions.

Merck shareholders receive a 3.0% dividend. SunTrust has a $73 price target, while the consensus target is $69.60. The shares closed Wednesday at $63.51.

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. 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.

SunTrust has pointed to the resolution of multiple ongoing patent litigation cases the company has with major pharmaceutical peers. The firm also noted that other catalysts include the ongoing Xiidra (dry eye) ramp targeting 18 million diagnosed patients in the United States. In addition to the global launches of Natpara, Gattex, Firazyr, Cinryze, Kalbitor and Xiidra through the larger global footprint of operating affiliates, another big catalyst is Onivyde and Natpar approval in European Union for pancreatic cancer and hypoparathyroidism, respectively.

Also, the SunTrust analysts are above the Wall Street estimates for the quarter and would be a 9% increase on a year-over year basis.

Investors receive a 0.63% dividend. SunTrust has set its price target at $260. The consensus figure is $226.08, and shares closed Wednesday at $146.29.

These four top companies all have data that could move the shares the rest of this year and into 2018. These stocks make good sense for more conservative buy-and-hold strategies looking for total return. All have been around for years and will remain sector leaders for years to come.