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.
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.
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.