A Credit Suisse analyst has upgraded European drugmakers GlaxoSmithKline PLC and Novartis AG based on their potential performances next year but downgraded AstraZeneca PLC due in part to an expected momentum slip.
Analyst Luisa Hector said in research notes the operational outlook for British drugmaker GlaxoSmithKline remains dull in 2011, and 1 percent sales growth is expected in 2012. Still, the company is entering a “particularly cash generative period in its product lifecycle,” with limited patent expirations and stable income from the asthma treatment Advair.
Hector upgraded the stock to “Neutral” from “Underperform” and said the drugmaker has a significant opportunity to return some of its capital to shareholders.
“We see little scope for ‘Outperformance’ until they do so,” Hector wrote.
Hector also upgraded Novartis to “Outperform” from “Neutral” and said Credit Suisse now estimates the Swiss drugmaker will have leading revenue growth in 2011 and 2012 compared with major pharmaceutical peers in Europe. The analyst noted that Novartis benefits from multiple growth drivers in categories like pharmaceuticals and vaccines and generics, and that helps offset patent expirations that will hurt big drugmakers by exposing their products to generic competition.
“We think that investors should use (2011’s first quarter) to build positions as positive catalysts become clear from this point,” Hector wrote.
AstraZeneca was downgraded to “Underperform” from “Neutral.” Hector said the British drugmaker outperformed over the past year due to revenue growth, margin expansion and a willingness to return excess cash to shareholders.
“In our view, all of the above are now fully reflected in the share price,” the analyst said.
The drugmaker’s sales growth momentum has turned, and Hector expects no material pipeline updates to come from the company in 2011, which is AstraZeneca’s last year before it hits a “patent hole.”
Date: December 7, 2010
Source: Associated Press
