Lehman Brothers upgraded the major U.S. pharmaceuticals group to positive from negative, driving shares of Merck (MRK) and others higher Tuesday.
Analyst Anthony Butler says the upgrade is predicated on multitude of basic premises: increased visibility on 2003 EPS on a company-by-company basis; upward inflection in forward EPS momentum for the group; potential plethora of positive news flow on new drug approvals and filings in the fourth quarter; and valuation trough.
He projects 8% weighted average EPS declines for the third quarter (-4% excluding Bristol-Myers Squibb (BMY). But he says the third quarter may signal a turning point for this much-maligned group. While BMY may continue to lag group, he expects Merck, Eli Lilly (LLY), Pfizer (PFE), Schering-Plough (SGP), and Wyeth (WYE) to post positive year-over-year gains in the fourth quarter.