Healthcare Business

Analyst's Top Pharmaceutical Buys Offer Big Dividends and Growth Potential

Lee Jackson

Merck

This leading health care stock is on the focus lists of many of the firms we cover. 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. Other products to prevent chemotherapy-induced and post-operative nausea and vomiting, treat brain tumors, treat melanoma and metastatic non-small-cell lung cancer and prevent diseases caused by human papillomavirus, as well as vaccines for measles, mumps, rubella, varicella, chickenpox, shingles, rotavirus gastroenteritis and pneumococcal diseases.

Further, it provides antibiotic and anti-inflammatory drugs to treat infectious and respiratory diseases, fertility disorders, and pneumonia in cattle, horses and swine; vaccines for poultry; parasiticide for sea lice in salmon; and antibiotics for the treatment of C. difficile, and vaccines against bacterial and viral disease in fish.

The Merrill Lynch analysts noted this after earnings were reported:

Merck reported third quarter 2016 earnings-per-share EPS of $1.07, above our $0.98 estimate (consensus was at $0.99), driven by a solid topline and judicious cost control. Merck’s anticipated dominance of first line lung cancer and attractive event path were the central tenets of our recent upgrade.

Merck shareholders receive a 3.07% dividend. The $71 Merrill Lynch price target is well above the consensus target of $66.11. The shares closed yesterday at $61.19.

Pfizer

This top pharmaceutical stock made a gigantic splash earlier this year with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) has a very strong pipeline, and being the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years.

The company continued its acquisition plans when it announced another gigantic purchase, acquiring Medivation, a biotech focusing on oncology drugs for a stunning $14 billion. Medivation’s drug, Xtandi, already generates about $2 billion in yearly sales and has the potential to more than double, according to analysts. Pfizer said the deal would add five cents to earnings in the first full year after closing and isn’t expected to affect its 2016 financial guidance. Pfizer said it plans to finance the transaction with its cash holdings.

Top Wall Street analysts feel that the election of Donald Trump will help companies like Pfizer repatriate some of the huge cash holdings they have overseas. With the tax rate on cash held offshore expected to be lowered, the value for this great company even goes higher.

Investors receive a 3.75% dividend. Merrill Lynch has a $36 price target for the stock, which is down 15% since August. The consensus target is $37.86, and shares closed Wednesday at $32.14.

Needless to say, the recovery of big pharmaceutical stocks may not happen overnight, so investors need to remain patient. However, all these top companies will continue to pay, and most likely raise, their dividends. That makes the wait very worthwhile, as investors will get paid while they wait.