- 28 февраля 2018, 17:06
- Zacks Investment Research
After rising 16.3% last year, the Large Cap Pharmaceutical industry has risen 1.9% this year so far. It has however underperformed the 4% gain for the S&P 500 in the same time frame.
Though the sector was off to a strong start in 2018, it struggled a little thereafter probably on broader market correction. Also, the mention of high drug prices by President Donald Trump in his State of the Union address hurt investor sentiment. However, the sector is largely expected to rebound as the year progresses.
2017 was a good year for pharma and biotech stocks with the sector witnessing some positive developments that led to a much-awaited recovery.
The NYSE ARCA Pharmaceutical Index gained 11.8% in 2017, in sharp contrast to the decline witnessed in 2016, which was a tough year for pharma stocks given the furor over rising drug prices.
A key reason for the sector’s improved performance was the willingness of investors to look beyond the drug pricing controversy and focus more on fundamentals instead. Although the drug pricing controversy will remain a headline risk, investors appear more comfortable with the issue. Moreover, a significantly higher number of FDA approvals in 2017 restored investor confidence in the sector. The approval of the first gene cell therapy last year was a major breakthrough for the sector.
Coming back to 2018, we believe that new product sales ramp up with rising demand, successful innovation and product line expansion, strong clinical study results, more frequent FDA approvals, continued strong performance from key products, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending are some of the factors that should keep the sector on track. A faster drug approval process and the proposed removal of outdated regulations that drive up costs and slow down innovation should also provide benefits.
Possibilities of more mergers and acquisitions (M&As) are also high now that the tax reform is in place and big players are on the lookout for companies with innovative pipelines/technology. There has already been quite a bit of M&A buzz this year about potential deals. Sanofi SNY and Celgene CELG have already announced two deals each.
Meanwhile, with the Large-Cap Pharma industry being among the top 30% of the 256 Zacks-ranked industries, it would make sense to look at some Buy-ranked stocks in the space.
Investing in stocks with a large market cap is a much more reliable investment because of the fact that they control a large portion of their given industry. Also companies with a larger market cap have performed well in 2017 and look well poised to earn higher profits in 2018.
Here is a look at four large-cap pharma companies that sport a favorable Zacks Rank -- #1 (Strong Buy) or #2 (Buy).
H. Lundbeck A/S HLUYY
Denmark-based Lundbeck specializes in psychiatric and neurological disorders. The company’s key areas of focus include depression, schizophrenia, Parkinson's disease and Alzheimer's disease. According to Lundbeck, about 700 million people across the world suffer from psychiatric and neurological disorders with many receiving inadequate treatment.
YTD, Lundbeck has outperformed the Large-Cap Pharmaceutical industry with shares gaining 4.7%. In addition to delivering revenue growth of 12% (in local currencies) in 2017, Lundbeck issued an upbeat outlook for 2018. Estimated earnings growth for the current year is 31.2%. Meanwhile, earnings estimates for 2019 are up 8.5% over the past 30 days.
AbbVie, Inc. ABBV
AbbVie beat estimates for both earnings and sales in the fourth quarter. It also raised its earnings expectations for 2018 based on continued strong operational performance. AbbVie’s key drug, Humira has been performing well based on strong demand trends, despite new competition. AbbVie’s shares have outperformed the industry in the past year, supported by a series of positive news including promising data from several pivotal studies, regulatory nods, including approval for its competitive HCV medicine Mavyret and two approvals for Imbruvica, and settlement of its Humira patent disputes with biotech major, Amgen AMGN.
AbbVie’s shares are up an impressive 22.3% this year so far, outperforming the industry.
Estimated earnings growth for the current year is 33.9%. Meanwhile, estimates for 2018 and 2019 are up 8.4% and 7% respectively, over the past 30 days.
Pfizer Inc. PFE
New York-based, Pfizer is one of the most well-known names in the pharmaceutical sector not just for its medicines and vaccines but also for its consumer healthcare products.
Pfizer reported better-than-expected fourth-quarter 2017 results as it beat estimates for earnings as well as sales and provided an upbeat outlook for 2018. We believe that Pfizer’snew products like Ibrance, contribution from acquisitions, cost cuts and share buybacks should help the company earn profits in the future quarters. Pfizer’s shares have risen 1.6% this year so far.
Estimated earnings growth for the current year is 11.3%. Meanwhile, estimates for 2018 and 2019 are up 6.1% and 4.1%, respectively, over the past 30 days.
Novo Nordisk A/S NVO
The year 2017 was eventful for this Denmark-based pharma giant as it gained regulatory approvals for some key pipeline drugs/candidates including fast-acting insulin aspart - Fiasp, once-daily pre-filled pen - Ozempic and hemophilia B treatment Rebinyn. Meanwhile, strong performance of Victoza is driving top-line growth. We believe these new products and a solid pipeline will pave the way for growth this year for the company.
Over the past 30 days, earnings estimates have risen 1.5% and 4.9%, respectively, for 2018 and 2019. Estimated earnings growth for the current year is 13.7%.
While Pfizer, AbbVie and Novo Nordisk are all Zacks Rank #2 (Buy) stocks, Lundbeck is a Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Sanofi (SNY): Free Stock Analysis Report
Pfizer Inc. (PFE): Free Stock Analysis Report
Novo Nordisk A/S (NVO): Free Stock Analysis Report
AbbVie Inc. (ABBV): Free Stock Analysis Report
H Lundbeck A/S (HLUYY): Free Stock Analysis Report
Celgene Corporation (CELG): Free Stock Analysis Report
Amgen Inc. (AMGN): Free Stock Analysis Report
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