Broker Liberum Capital has moved its stance to ‘neutral’ from positive on European pharmaceuticals stocks, but has retained its positive calls on two of the UK’s three leading druggies.
It has been bullish on the sector since November’s US elections, in which time the sector has advanced 20%, or 12% in relative terms.
“Our valuation tool, which looks at value creation from R&D, now suggests the sector is broadly fair value,” analyst Roger Franklin explained.
He said he likes GlaxoSmithKline plc (LON:GSK), which is rated a ‘buy’ up to £19 a share.
Consensus earnings estimates are just too low, he reckons, given the potential to expand profit margins by up to three full percentage points.
AstraZeneca PLC’s (LON:AZN) pipeline of new drugs excites the Liberum number cruncher, and he says the stock is worth £55.
“Within a sector where the rating goes sideways, we favour stocks where there is disconnect between current valuation and either earnings or R&D performance,” Franklin said.
Its ‘least favoured’ stocks are Swiss firm Roche, France's Sanofi and Shire Plc (LON:SHP), which was recently cut to ‘hold’ with a price target of £49.