Two Picks In Big Pharma Ahead Of Q3 Earnings
BTW, Saw Cramer on Pharma tonight. Likes SGP, Doesn't like LLY, PFE, MRK - Doc
Forbes News
October 12, 2005 10:25 AM ET
In an earnings preview of the pharmaceuticals sector, Chris Schott of Banc of America Securities said Lipitor looks to be the focus of next week's third-quarter earnings report from Pfizer, while investors will likely zero in on Zyprexa updates for Eli Lilly. Schott maintained a "buy" rating on Pfizer and Lilly and expects an inline quarter from the group as a whole, as patent expirations and research commitments are set to negatively impact margins. The pharma analyst said Pfizer's current share price reflects a "seemingly bearish view of the company's growth prospects" amid concerns regarding generic competition and product liability risks. "With low expectations built into the shares in our view, we are encouraged that Pfizer's recently announced $4 billion cost restructuring will stabilize near-term earnings," he said. "In addition, over the long term, we believe that the company?s emerging pipeline remains underappreciated by the market." For Lilly, Schott advised investors to focus on updates regarding schizophrenia drug Zyprexa in addition to commentary related to ADHD treatment Strattera. "We believe that the largest risk (and primary near-term focus) of the Lilly story remains further Zyprexa sales erosion, particularly in Europe," said Schott. "We are leaving our Strattera numbers unchanged for now, although pending ongoing review, following a recent label change that added the increased risk of suicidal thoughts in children being treated with Strattera." The research analyst said Eli Lilly remains the firm's top pick among U.S. major pharmaceutical companies due to its "industry-leading pipeline" and relatively low exposure to patent expiration risks. "We believe that Lilly is on the cusp of a sustained period of sales growth and margin expansion," he said. Elsewhere, Schott said Wyeth will likely see "healthy growth" while Schering-Plough could see a recovery in sales. Lilly and Pfizer are the research firm's favorite picks in the sector with respective price targets of $30 and $66; the least favorite stock is "sell"-rated Schering-Plough, with a price target of $18.
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