After a pullback in the sector earlier in the third quarter, it seems that a rising tide has brought pharmaceuticals back to the forefront. As a result, one key analyst has revealed its top five picks for 2015. Jefferies updated the thesis behind its “Top 5 for 2015” picks: AbbVie Inc. (NYSE: ABBV), Pfizer Inc. (NYSE: PFE), Eli Lilly and Co. (NYSE: LLY), AstraZeneca PLC (NYSE: AZN) and Zoetis Inc. (NYSE: ZTS).
AbbVie’s surprise mid-term guidance was in line with the Jefferies thesis in terms of both earnings per share (EPS) growth and the back-story on Humira biosimilars. The firm continues to see the shares as extremely cheap and looks to incremental news flow on product launches, pipeline, Humira patents and legal updates to drive the shares. Meanwhile, the confirmation that Pfizer is in preliminary talks with Allergan is positive in the firm’s view. Ultimately Jefferies sees it as a first step toward serial mergers and acquisitions, spin-offs and separation of multiple parts of the business afterward.
While Jefferies does not expect any “big announcements” from Eli Lilly management on December 8, it does expect the focus on Animal Health and Alzheimer’s to serve as a reminder of just some of the strengths of the company’s business. The firm continues to believe that management will drive operating margin improvement ahead of consensus expectations and that the strong flow of product launches and key catalysts in 2016 (including potentially solanezumab) will continue to drive outperformance of the shares.
In its report Jefferies said:
Novo Nordisk is a high quality company, with a high quality management team and local market support and share repurchases that should not be underestimated. Nevertheless, we have moved it to our “least preferred” EU name, displacing Sanofi from last month ahead of its third quarter earnings and Investor Day, as we become increasingly concerned on Novo’s ability to weather pricing pressure and biosimilar competition in diabetes as well as the threat of ACE910 on NovoSeven in the mid- to long-term. The Capital Markets Day on November 19 may address these issues, or just serve to remind investors that the threat is growing and Novo may need to turn to M&A to diversify its business.
Shares of AbbVie closed Tuesday at $60.38. The stock has a consensus analyst price target of $75.29 and a 52-week trading range of $45.45 to $71.60.
Pfizer shares closed at $32.87, with a consensus price target of $40.27 and a 52-week range of $28.47 to $36.46.
Eli Lilly closed most recently at $81.30. The consensus analyst price target is $95.63, and the 52-week range is $66.56 to $92.85.
Shares of AstraZeneca ended Tuesday at $33.45. Its consensus price target is $36.86, and the 52-week trading range is $29.50 to $37.97.
Zoetis shares closed at $45.77, within a 52-week range of $37.73 to $55.38. The consensus price target is $52.67.