Top 5 Jefferies Big Pharma Stock Picks for Q4

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With major mergers and acquisition deals happening, and a host of clinical trials that could offer some outstanding breakthrough drug treatments, the big pharmaceutical stocks have had their fair share of attention so far this year. Toss in a degree of turmoil thanks to political rhetoric, and the sector has had a rough go compared to other S&P 500 sectors.

A new Jefferies research report features top picks for the fourth quarter, and while the status quo remains pretty much the same, the individual picks do shift a little. All the top picks are rated Buy at Jefferies.


This stock is the top global pharmaceutical stock pick at Jefferies. 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.

Back in May, the patent board 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, which does give investors chances to pick up shares lower.

The stock trades at a small discount to its large pharmaceutical peers, and some on Wall Street cite the biosimilar issue as a likely reason why. However, some on Wall Street are still less than thrilled over the steep price the company paid to buy Pharmacyclics.

AbbVie investors receive a 3.63% dividend. The Jefferies price target for the stock is $90, and the Wall Street consensus target is $71.28. Shares closed Wednesday at $63.39.

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.

Eli Lilly reported mixed second-quarter earnings and revenue that were just slightly under consensus. While the overall numbers were unremarkable in some analyst’s view, Merrill Lynch is still very focused on the company’s outstanding late-stage product pipeline, which it and others on Wall Street view as very undervalued.

Shareholders receive a 2.52% dividend. Jefferies has a $105 price target, and the consensus target is $97.60. Shares closed Wednesday at $80.88.