Shares of drug giant Pfizer Inc. (NYSE: PFE) have lagged rival Merck & Co. Inc. (NYSE: PFE). The gain of 23% for Pfizer from this time a year ago is an impressive return, but Merck’s gain has been 55% in the same period. And a year-to-date gain of 8.5% handily trumps a Pfizer’s loss of almost 3%.

According to Credit Suisse, Pfizer investors might be getting to make up some of that relative underperformance. The firm’s Vamil Divan sees upcoming catalysts driving greater appreciation of its new products. The risk-reward analysis is also quite favorable here, according to the report.

Divan noted that Pfizer shares have been essentially flat since late January. After investor conversations on what the potential drivers of upside in the next several months could be for Pfizer, the analyst is looking for a period of stronger top and bottom line growth once the Lyrica patent expiration is behind the company.

Credit Suisse has an Outperform rating on Pfizer, and the firm’s $47 price target is handily above the Refinitiv consensus analyst price target of $44.14. That above-consensus target implies about 15% upside, including the 3.4% dividend yield.

Divan sees greater investor appreciation of Pfizer’s drug pipeline in the coming months. Also cited is a positive valuation with the shares trading at less than 15 times the firm’s 2019 earnings per share estimate. That $47 base case target price was also shown to be from a 75%/25% blend of discounted cash flow valuation and relative valuation.

The firm has a relative valuation of $46, but its blue sky valuation is all the way up at $55. Credit Suisse’s so-called blue sky valuation, which implies that things go even better for the drug giant than expected, is $55 per share. That upside is based on greater sales from Ibrance, Prevnar, Xtandi and Eliquis than current assumptions, which also would imply higher operating margins.

Divan admits that the safety profile for tanezumab, particularly with regards to rapidly progressive osteoarthritis, remains controversial, but there is also an expected Phase 3 JAK 1 atopic dermatitis study data expected soon that could bring a large blockbuster commercial opportunity. Divan noted:

The Phase 2 study demonstrated rapid activity in clearing skin eczema and in itching with no treatment-related thromboembolic events such as PEs/DVTs that have plagued the oral JAK inhibitor class.

Credit Suisse sees Pfizer releasing Duchenne muscular dystrophy data this summer, and it is looking for data also coming from its sickle cell and C. difficile studies. Divan also sees Tafamidis, Prevnar adult and Ibrance adjuvant having higher expectations with limited downside risks.

Credit Suisse also rates Merck with an Outperform rating and an $86 price target.

Pfizer shares were last seen down 0.7% at $42.15, in a 52-week range of $34.37 to $46.47.

With Merck shares trading down 0.7% at $82.35, Credit Suisse is only targeting about 6% upside, if you include its 2.7% dividend yield. Merck’s consensus target price is $85.49.

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