Buy US Major Pharmaceutical Stocks on Weakness, BofA/Merrill Lynch Says (LLY) (PFE)

Analysts at BofA/Merrill Lynch said the sell-off in U.S. pharmaceutical stocks creates a buying opportunity. The firm is positive on a macro and stock-specific (micro) perspective.

"Overall, our positive sentiments align with our Equity Strategy team liking the sector based on yield, solid fundamentals and relative ownership," the analysts, including Colin Bristow, said. "From a micro perspective, we are constructive on the group, with three out of five Buys (and two Neutrals). As a general theme, we see potential for upward revisions to earnings
estimates as the pipelines continue to deliver. We also like the geographic and therapeutically diverse business models, limiting the potential impact of any regional /market specific headwinds."

Eli Lilly & Co. (NYSE: LLY) is their top pick in the U.S major pharma group based on: 1) an underappreciated pipeline of late-stage assets (e.g. baricitinib, ixekizumab, evacetrapib), coupled with 2) a catalyst-rich event path over the next 12-18
months consisting of multiple data readouts/potential approvals which should serve to de-risk the pipeline assets and lead to upward revision of estimates, and 3) a solid core diabetes base business with three ongoing new product launches (Jardiance, Trulicity, Abasaglar) which leverage LLY’s existing sales and marketing infrastructure.

The firm also highlighted Pfizer (NYSE: PFE) as a particularly attractive buying opportunity given compelling valuation, solid dividend yield (about 3.5%), low pipeline expectations, and the potential for transformative M&A.

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