By Sam Boughedda
Credit Suisse analysts said Friday that the firm is initiating coverage of U.S. large-cap pharmaceuticals with four Outperform ratings, two Neutral ratings, and one Underperform rating.
The analysts started Merck & Company Inc (NYSE:MRK), AbbVie (NYSE:ABBV), Pfizer (NYSE:PFE), and Eli Lilly (NYSE:LLY) at Outperform, with Johnson & Johnson (NYSE:JNJ) and Bristol-Myers Squibb (NYSE:BMY) at Neutral and Amgen (NASDAQ:AMGN) at Underperform.
"With the macro backdrop uncertainty unlikely to resolve over the next few months, we see Large-Cap BioPharma as a key sector to own for defensive exposure at a reasonable price," wrote the analysts. "History shows U.S. Large-Cap Pharma outperforming in periods of macro volatility, and we currently favor U.S. Pharma over Europe given recent liability litigation risks. Despite Pharma's unchanged long- term secular growth drivers and high margins to absorb cost inflation, U.S. Pharma's one-year forward P/E is significantly below other U.S. defensive sectors (U.S. Pharma P/E is 16-17x vs. 18-20x for utilities and consumer staples) despite having higher 2021-25E revenue growth (7% vs. 4-5%, respectively)."
The analysts added that the firm believes Pharma, unlike other defensive sectors can provide optionality outside of an economic cycle through its product-driven catalysts, and they continue to see less focus on valuation in decision-making given a continued volatile macro backdrop, with high growth and solid fundamentals preferred.
"While overhangs remain, we think that drug pricing concerns following the U.S. Inflation Reduction Act of 2022 are manageable and that the 2025-plus patent cliff is well understood. In the current climate, we prefer names with higher short- to mid-term growth and companies that can affect meaningful change through pipeline success, product execution, and impactful M&A," the analysts added.