Health and Healthcare

SunTrust Bullish on Blue Chip Large-Cap Pharmaceuticals: 4 to Buy Now

Lee Jackson

Published: January 25, 2018 10:00 am

Last Updated: January 12, 2020 4:07 am

Some of last year’s biggest laggards are starting to look like this year’s winners out of the gate here in January. While health care was basically in line with the S&P 500, it had nowhere near the staggering gains that some of the technology subsectors posted. With the market trading at very extended valuations, and the S&P 500 on the longest streak ever without a 5% correction, it may make sense to move to some safer higher ground.

One of the safer areas to move to may be large-cap pharmaceutical stocks, and with the potential for solid fourth-quarter earnings, and some potential share moving catalysts on the horizon, the industry could be just the spot for growth investors.

In new research report, SunTrust is positive on some of the bigger players in the sector in front of earnings. The report cites new product volume prescription growth, U.S. pricing leverage and a nice currency tailwind as positives for the group. The firm has four stocks rated Buy that look attractive now.

AbbVie

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.

Most on Wall Street feel that, based on the strength of Humira formulation patents and patent litigation timelines, a U.S. biosimilar is not expected until 2023. Also, Abbvie’s next-gen immunology agents should partially mitigate Humira revenue that eventually will be lost to U.S. biosimilars. In fact, SunTrust cited continued Humira growth as a big catalyst for the shares going forward.

AbbVie shareholders receive a 2.69% dividend. The SunTrust price target for the shares is $105, and the Wall Street consensus target is $103. But the stock traded early Thursday at $106.40.

Bristol-Myers

This top stock remains a favorite and the company has posted solid financial results. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.

The company announced last year that Biogen will pay $300 million upfront to Bristol-Myers to license a palsy drug with a $2 billion market opportunity and the potential to use that to treat Alzheimer’s. The company will pay a total of $410 million in milestone payments and a tiered double-digit royalty to license a drug known only as BMS-986168. The drug just completed Phase 1 testing in progressive supranuclear palsy.

The SunTrust report noted this:

Opdivo US market share in the IO segment is holding up quite well despite rising Immuno Oncology competition. We also expect another strong quarter for Eliquis in global sales [+40% YoY]. We assume the company provides a $3.20-$3.30 EPS range versus our’s and Wall Streets $3.38/$3.23; Bristol-Myers has tended to provide conservative ranges on their fourth quarter call over the past several years.

Shareholders receive a 2.51% dividend. SunTrust has a $75 price target, and the consensus target is $64.36. Shares were last seen at $63.65.

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Eli Lilly

This stock has solid 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.

SunTrust views the Eli Lilly 2018 projections as conservative, and while it maintained total revenue estimates for 2018, has increased the earnings projection due to the lower tax rate. With numerous 2018 catalysts on the horizon, the stock looks like a solid pick for growth accounts.

Shareholders receive a 2.67% dividend. The $101 SunTrust price objective is well above the consensus target of $92.09 and the recent share price of $84.95.

Merck

This is a leading health care stock for conservative investors, and the company is also expected to partner with Samsung Bioepis for biosimilar development. 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.

The analyst remains very positive on Keytruda:

As we noted recently, the positive Overall Survival/Progression Free Survival benefit achieved in Keynote-189 (KN-189) allows Keytruda to maintain its first-mover advantage in 1L Non Small Cell Lung Cancer. The company plans to share the full KN-189 results at an upcoming medical meetings and submit the KN-189 data to global regulatory authorities. We expect Merck to file KN-189 in the US/EU by mid-2018/third quarter 2018, respectively.

Merck shareholders receive a 3.14% dividend. The SunTrust price target is $72. The consensus target is $66.86, and shares traded at $61.30.

These are four top large-cap pharmaceutical stocks for investors to consider. It may make sense to buy partial positions and keep some dry powder as the market has rallied big already in 2018, and valuations are stretched.