The large cap pharmaceuticals sector comprising some of the biggest drugmakers of the world was off to a strong start in 2018. However, the sector took a backseat due to reasons like U.S. market instability and a few negative updates on the pipeline as well as regulatory front. Also, some older drugs of these companies are not performing up to the mark, inducing a drop in their revenues.
The Zacks Large-Cap Pharma industry has declined 3.1% so far this year against the Zacks S&P 500 Composite’s gain of 2.6%.
Overall, the sector is expected to rebound in the second half of the year. We believe, new product sales will be ramped up on the back of a rising demand, successful innovation and product line expansion, strong clinical study results and frequent FDA approvals. This upside in turn, might bring the sector back on track this year. Also, many of these companies have accelerated their cost-saving initiatives to enable investment in new products as well as defend the existing product portfolio to optimize long- and short-term growth. Cost savings can drive the earnings performance.
Importantly, mergers and acquisitions (M&A) activity is gaining momentum with the tax reform in place. The new tax law, which cuts corporate tax rate from 35% to 21% and encourages companies to bring back huge cash held overseas at a one-time tax rate of 10%, is spurring merger activity this year.
With an optimistic outlook for the rest of the year, here we highlight three stocks that may prove to be good buys. All these stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have seen their share price and earnings estimates rise in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Large Cap Pharma Stocks
H. Lundbeck A/S (HLUYY - Free Report)
Shares of this Danish drugmaker have rallied 18.9% in the past three months. The Zacks Consensus Estimate for current-year EPS has been revised 11.6% and 4.3% upward for 2018 and 2019, respectively, over the last 60 days. H. Lundbeck has a Zacks Rank of 1.The company witnessed solid revenue growth in the first quarter of 2018 despite headwinds from exchange rates and generic erosion. It also strengthened its R&D pipeline with the inclusion of Parkinson's disease candidate, foliglurax, from the acquisition of Prexton Therapeutics, currently in mid-stage development.
Pfizer Inc. (PFE - Free Report)
This Zacks #2 Ranked stock has been working on strengthening its suite of products through buyouts and licensing deals. The company’s new products like Ibrance, contribution from acquisitions, cost-cutting efforts, a lower tax rate and share buybacks should help the company achieve its guidance. Pfizer also boasts a strong pipeline and expects approximately 25 to 30 drug approvals through 2022 including around 15 products with blockbuster potential. Pfizer’s growing immuno-oncology portfolio offers strong growth prospects. Shares of the company have increased 3.9% in the past three months. Earnings estimates have also moved 0.3% north both for 2018 and 2019, respectively, over the past 60 days.
AbbVie Inc. (ABBV - Free Report)
AbbVie’s key arthritis drug, Humira, is performing well on strong demand trends despite new competition. Moreover, its drug Imbruvica marketed in partnership with Johnson and Johnson (JNJ - Free Report) is approved for hematological cancers has multibillion dollar potential and the company is exploring the possibility of a label expansion for solid tumors and autoimmune diseases. Mavyret for hepatitis C virus has become a major growth driver for AbbVie in a short span within the market. Moreover, AbbVie boasts an impressive late-stage pipeline with label expansions for both new and existing products, expected over the next few years. Several pivotal data readouts and regulatory milestones are also anticipated in 2018. Additionally, the company carries a Zacks Rank of 2 and its share price has also gained 4.4% in the past three months. The consensus estimate for the company’s current and next-year bottom line has also been raised 0.3% and 0.2%, respectively, over the past 60 days.
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