Goldman Sachs' Possible Pair Trade For Drug Manufacturers' Stocks

In a report published Thursday morning, Goldman Sachs analysts provided an idea for a possible pair trade involving Eli Lilly and Company LLY and Johnson & Johnson JNJ. The report suggested that the research firm expects to see Eli Lilly deliver better results than Johnson & Johnson in the months to come.

So, let’s take a look at these companies, and try find out if Eli Lilly actually stands as an attractive investment option, and if you should definitely keep away from Johnson & Johnson.

Eli Lilly

Goldman upgraded Eli Lilly’s stock from Sell to Neutral “based on the increased optionality provided by cost reduction, new product launches and pipeline assets,” the report explained.

After the company reduced its FY 2014 outlook and guided that FY 2015 will be near expectations, several research firms weighed in on the stock. The most bullish was Jefferies: following the new guidance, analyst Jeffrey Holford upgraded the stock to Buy and raised the price target from $75 to $80 on the back of “margin expansion and anticipation of significant pipeline optionality in 2016 (evacetrapib; peak $5bn) driving the stock higher in 2015.”

But, while Goldman and Jefferies analysts are more confident on Eli Lilly than they used to be, specialists at Bank of America and Deutsche Bank, aren’t. Also following the new guidance, the former downgraded the stock from Buy to Neutral, while the latter trimmed its recommendation from Buy to Hold, but reiterated the $75.00 price target.

Despite the demotion, Deutsche Bank maintains a positive outlook for the company. The change in the rating was in fact triggered by the relatively modest upside to their $75 price target.

The stock currently trades around $70.

Related Topic: Eil Lilly CEO Talks New Product Launches, Pricing Pressure From Other Companies

Johnson & Johnson

Opposite to Eli Lilly, Johnson & Johnson was downgraded by Goldman, from Neutral to Sell. The research firm set a price target of $97, when the stock traded around $103. It is now down to roughly $102.20.

On December 16, JP Morgan also rated Johnson & Johnson. The firm gave it a Neutral and a $110 price target.

Related Topic: Wall Street's Wheelings And Dealings