Pharmaceutical Stock Ratings Change at Berenberg

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By Sam Boughedda

In a note on pharmaceutical stocks Wednesday, a Berenberg analyst downgraded shares of Novartis (NYSE:) and Bristol-Myers Squibb (NYSE:) to Hold from Buy and upgraded Roche (OTC:) and Merck & Company Inc (NYSE:) to Buy from Hold.

He also adjusted the price target on the stocks, raising Roche’s to CHF380 from CHF350 and Merck’s to $100 from $95. She lowered Bristol-Myers Squibb to $76 from $82 and Novartis to CHF80 from CHF90.

On Roche, the analyst said: “Roche’s pipeline is innovative and targets unmet need. We expect there to be material newsflow in the coming months. We see upside to the share price for this quality name with a stable mid-single-digit growth profile that could be augmented by the next pipeline success.”

On Merck, he wrote: “Merck & Co trades on 12.5x 2023 adjusted EPS, in line with the US sector median. On an EV/NPV basis, Merck & Co is the most attractive US pharma stock, trading at 0.79x versus an average of 1.06x. Merck & Co’s share price still trades below the equity value of marketed assets. Our SOTP assessment of the company implies 30% upside to share price.”

Commenting on Bristol-Myers Squibb, the analyst explained that the “valuation remains low, but unlocking catalysts are now fewer.”

“Bristol-Myers trades on the lowest pharma valuation in our coverage – 8.9x 2023 adjusted EPS versus the US sector median of 12.4x. On an EV/NPV basis, which factors in the longer-term patent expiry impact, Bristol-Myers also trades below peers (0. 91x versus 1.03x respectively),” added the analyst.

Finally, on Novartis, the analyst stated: “Novartis trades at a discount to peers on 2023E adjusted earnings (13.3x versus the global sector average of 15.5x), which is warranted given its inferior R&D returns. Novartis trades broadly in line with the group on EV/NPV (1.03x versus a sector average of 1.03x). Our updated SOTP supports a fair value of CHF76/share.”

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