* What’s new? 3 stocks with notable upside to consensus for 2Q
For MNK, we are 18% above consensus and believe owning the stock even if for just
the qtr makes sense. We also see upside from IPXL (33%) and TEVA (6%) but believe
the buy-side is ahead of the sell-side for these beats. We are also 2% above the Street
for ACT, and if anything we may be too conservative with our estimate. JAZZ is the
one stock where we are slightly above consensus (3%) and think Street numbers
should probably come down some. Our preview includes our updated financial models,
company milestones, and price increases for key products as well as industry valuation
models. Changes to our EPS estimates and price targets are presented in Figure 4.
* In generics, ACT remains our favorite but we also like MYL and PRGO
Actavis is a strong earnings story, and we believe sustainable double digit growth for
the next 3-5 years is still underappreciated. We also expect M&A to play an important
part of the story. In Mylan, we see continued double-digit growth driven by multiple
growth opportunities (injectables, Copaxone, Advair, and biosimilars) and we also
expect M&A to augment that growth. For Perrigo, we continue to believe the macro
drivers of increased private label penetration and Rx to OTC switches will remain
strong, and we expect mgt to leverage its lower tax rate from Elan to do further deals.
* Many opportunities in spec: We like MNK, VRX, ENDP, and JAZZ
MNK is our top pick, and we believe the Questcor deal is transformational and highly
accretive. On Valeant, whether it gets Allergan or not, we expect Valeant as well as
Endo to do accretive deals that should move the stocks. Now that Allergan has started
to let the numbers loose, it is an even stronger growth story and performer. In Jazz, we
still believe in its sustainable strong growth and the strength of the Xyrem IP.
* In large-cap: Our focus remains on MRK and PFE
We believe sentiment continues to get better on Merck for a new product story (PD-1,
HCV, maybe even Odanacatib/Suvorexant). Our thoughts on Pfizer are similar with
new products like Palbo and PCSK9 and many Phase 2 readouts over the next year as
well as the likelihood of eventually unlocking further value with a company breakup.