US Major Pharmaceuticals
PRE RESULTS COMMENT
Price Increases Should Outweigh Currency
Headwinds in 4Q 2008
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The defensive nature of the pharma industry provided some support for the
group during the volatile 4Q 2008, with our names down “only” 6.7% as
opposed to the S&P that was down 22.2%. Heading into 4Q 2008 earnings
these defensive traits should allow for continued year-over-year earnings
growth for most of our names (MRK being the notable exception). Much of
the growth continues to be generated by significant price increases, however,
which we do not see as sustainable over the coming years.
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Currency concerns have eased to some degree but still present a significant
headwind to all of our names this quarter, given the 9.1% annual and 12.5%
sequential change in the US dollar to Euro relationship during the quarter.
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Our most notable differences to consensus include SGP (+$0.02, +6.9%)
and WYE (+$0.02, +2.0%). SGP is up 40% over last 3 months and so a
strong quarter may be followed by profit-taking, providing an entry point for
longer-term investors. WYE may be a name to buy pre-quarter as results
should beat and 2009 guidance could lead to positive revisions.
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Post quarter, JNJ may offer a short-term trading opportunity. The stock is
down 11% over the last 3 months as investors have been bracing for 2009
guidance, given competitive &/or economic pressure on all 3 Divisions
(Pharma, MDD & Consumer). We expect guidance to offer a wide range,
with the bottom beneath consensus. After 2009 is better understood we
think the stock could be an attractive trade in the sense that it has limited
downside and to generalists may appear more defensive than other options.
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In advance of 4Q 2008 earnings, we have fine-tuned our company and
market models with resulting EPS changes. Significant changes to the
company models are explained in each company’s section.
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ABT 2008 EPS: old $3.35, new $3.34, and 2009 EPS: old $3.70, new $3.69.
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BMY 2008 EPS: old $1.69, new $1.70, and 2009 EPS: old $2.08, new $1.96.
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JNJ 2008 EPS: old $4.55, new $4.54, and 2009 EPS: old $4.58, new $4.56.
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LLY 2008 EPS: old $4.01, new $3.98, and 2009 EPS: old $4.17, new $4.18.
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MRK 2008 EPS: old $3.28, new $3.29, and 2009 EPS old $3.19, new $3.25.
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PFE 2008 EPS: old $2.37, new $2.36, and 2009 EPS: old $2.45, new $2.44.
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SGP 2008 EPS: old $1.67, new $1.68, and 2009 EPS: old $1.71, new $1.73.
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WYE 2008 EPS: remains at $3.56, and 2009 EPS: old $3.77, new $3.76.