Goldman has a new favorite biotech because of potential Alzheimer's 'blockbuster'

• Research analyst Terence Flynn added Biogen to Goldman Sachs' Americas Conviction List on optimism its Alzheimer's drug may be the first to successfully slow the progression of the disease.
• By 2050, one new case of Alzheimer's is expected to develop every 33 seconds, according to the report.
• Goldman projects that one of the two drugs, known as Aducanumab, could reach peak sales of $12 billion.

Suzanne Kreiter | The Boston Globe | Getty Images

Goldman Sachs added Biogen to its Americas Conviction List, highlighting the biotech's lead pipeline Alzheimer's drug as possibly one of the first to successfully prevent or slow the progression of the disease.

"Biogen has a broad Alzheimer's disease portfolio, which, if successful, would allow it to access a greenfield, blockbuster market opportunity," wrote Goldman analyst Terence Flynn, Ph.D. "It is difficult to overstate the growing societal burden of Alzheimer's disease … By 2050, one new case of Alzheimer's disease is expected to develop every 33 seconds in the United States."

Cambridge-based Biogen focuses on discovering and developing therapies for neurological and hematologic disorders including multiple sclerosis and hemophilia. Through a partnership with Eisai, the two companies have two Alzheimer's drugs in late-stage development, both of which could be huge money generators.

Goldman projects that one of the two drugs, known as Aducanumab, could reach peak sales of $12 billion.

The analyst has a $338 price target on Biogen, representing 17 percent upside from Tuesday's close. The shares rose 1.4 percent in premarket trading Wednesday after Goldman's call.

Biogen is also a key player in treatment of multiple sclerosis, handling 38 percent of all MS patients globally. With more and more competitors entering the MS market, Biogen has started to feel pressure on some of its established drugs.

"MS is a mature market and competition has been increasing. But while generics and other new entrants could capture share, we don't expect wholesale 're-pricing' of the category," continued Flynn.

In all, Goldman Sachs not only sees room for drug catalysts, but additional business development could provide Biogen with free cash.

"Our firepower analysis suggests $14 billion in capacity, which is above what management discussed on the 2Q call regarding the maximum size deal it could pursue," wrote Flynn.

"Hence, in addition to potential business development deals, we believe the company could more aggressively repurchase shares."

By Thomas Frank

Source: https://goo.gl/X84QWG

Goldman Identifies the Most Profitable Stocks for 2017 (AVGO, CMG)

Goldman Sachs (GS) predicts that a combination of higher wages, rising interest rates and inflation will weigh on the profitability of U.S. companies this year and next.

In a first quarter earnings preview research note, the investment bank argued that only an unexpected sales boost, triggered by a continuation of impressive economic growth, can potentially stop profit margins and earnings per share from sliding in 2017. The sectors it reckons will struggle most are consumer discretionary and industrials, because both are more sensitive to wage increases

21 Exceptions

Against this difficult backdrop, Goldman identified 21 companies that it believes are best equipped to increase profit margins by at least 50 basis points during 2017 and 2018.

Eight of the stocks that Goldman is most bullish on are in the information technology sector. Topping the list for 2017 is Broadcom (AVGO) which has become one of the most profitable semiconductor companies in the world since merging with Avago back in in 2016.

Source: Goldman Sachs Global Investment Research.

Broadcom’s leading status in high-growth technology markets, including wired and wireless network tools, data storage controllers, and automotive computing, helped the company beat analyst expectations in the first quarter of 2017. Goldman forecasts continued robust demand to lift its already high operating profit margin by a further 493 basis points over the rest of the year. (See also: Previewing AVGO Quarterly Results.)

Chipotle Mexican Grill (CMG is forecast to have the second-best year for profit margin growth. After multiple foodborne-illness scares in 2015, the restaurant chain is now believed to be in a strong position, thanks to a combination of better management and surging consumer demand for healthier food choices.

In third place came Applied Materials (AMAT) . Also read: https://goo.gl/eNwbsR

Like Broadcom, the maker of semiconductor chips for smartphones, televisions and solar products has carved out a dominant position in the markets it serves. After years of heavy investment in research and development, Applied Materials is now able to provide much better equipment design experience than competitors Lam Research (LRCX)
and ASML (ASML)

 (See also: Strong Fundamentals Support Applied Materials Breakout.)


Other companies on Goldman’s list include: FLIR Systems (FLIR) Zoetis (ZTS) Qorvo (QRVO)

FLIR Systems Inc

FLIR

35.57

+0.06%

 Vulcan Materials (VMC) NVIDIA (NVDA) Netflix (NFLX)  and Symantec (SYMC)

Qorvo Inc

QRVO

69.38

-1.78%

Vulcan Materials Co (Holding Co)

VMC

119.90

-1.19%

NVIDIA Corp

NVDA

97.68

-0.09%

 Source: https://goo.gl/a2VbA1

Here's Why Goldman Sachs Now Thinks Rolls-Royce Shares Could Surge 55%

Goldman's call sends Rolls-Royce shares higher on Monday.

Rolls Royce Plc  ( RYCEF)  shares surged Monday after Goldman Sachs upgraded the aircraft engine maker to a buy, claiming that improving free-cash-flow could drive the stock 55% higher over the next 12 months. 

"Rolls Royce has the potential to substantially increase FCF between now and 2020," noted Goldman analysts Chris Hallam and Peter Lapthorn. ""We expect company-defined FCF to improve from £120 million ($150 million) this year to £495 million in 2018, £1,018 million in 2019 and £1,547 million in 2020. Our 12m price target of 1030p implies 55% upside and an 8% FCFe yield in 2020." 

 

Rolls Royce shares traded 4.24% higher Monday at 694 pence each by 10:00 GMT, clawing back some of the 9.34% decline the stock suffered last week. 

The Derby, England-based maker of plane engines has struggled in recent years, with earnings dipping 5% since 2006, due in part to a sharp increase capital investment, R&D spending and cash injections to plug a shortfall in the company's pension fund. Goldman argues that spending will now level out, while the company is poised to reap the benefits of cash already sunk into the business. 

"Between 2009 and 2016 Rolls-Royce raised spending on PP&E (property, plant and equipment) from £258 million to £585 million, reflecting in part the building of three major new facilities and the installation of associated equipment required to deal with the ramp-up on engine volumes from Trent 1000 and Trent XWB," wrote Goldman. 

The benefits of that investment should be felt over the next four years, with output capacity likely to grow at a compound rate of 8%, meaning output could climb as much in the next four years as it did in the previous 10 years. 

Rolls Royce will continue to make a loss until probably 2020 on the sale of each of its new Trent XWB engine, which are used on wide body aircraft such as the Airbus A350, but will begin to reap significant new cash flows from its key after-sale services. Aftermarket payments from airlines, which average about $440 per hour of flying could add £782 million to earnings between 2016 and 2020, making it the biggest contributor to earnings growth, Goldman predicts. 

Beyond 2020 the company is also likely to benefit from a significant increase its sterling denominated earnings following last year's fall in the pound in the wake of Britain's vote to leave the EU. "This FX angle we believe supports a normal or expensive valuation multiple being applied to long dated numbers," wrote Goldman.

Paul Whitfield

Source: https://www.thestreet.com/story/14007798/1/rolls-royce-shares-surge-after-goldman-tips-55-gain-for-engine-maker.html

The 2 stocks expected to take the Dow above 18,000

A substantial rebound in the market has taken the Dow Jones industrial average up to its highs of the year, and nearly all the way back to a level that hasn't been seen since June: 18,000.

And at this point, all the index needs in order to cross that elusive level is for two stocks to rise to analysts' average price targets.

The Dow is a price-weighted index, meaning it replicates a strategy in which an investor owns just one share of each stock in the group. For this reason, the higher the share price of a given stock, the more importance it has in the index. That's why right now, the Dow's most important stocks are 3M, Goldman Sachs and IBM.

Analysts are none too bullish on 3M or IBM. 3M shares are expected to stay flat, based on analysts' price targets as compiled by FactSet, while IBM is actually overvalued by 11 percent, going by the median analyst price target.

However, Goldman Sachs is seen as a serious candidate for outperformance. 57 percent of the analysts who cover the stock rate it as a "buy," and the median price target on the now-$157 name is $187. If Goldman makes the expected 19 percent rally, then it alone will add more than 200 points to the Dow.

That would take the index up near 17,935. It would still need a bit of help, then, to get to the 18-handle.

And that's where Apple could come in.

The tech giant's share price is above the average for the index, giving it somewhat outsized importance in determining the Dow level. And analysts are markedly bullish on Apple, giving the stock a median price target of $130, according to FactSet.

If the 19 percent rally implied by that target arises, Apple will add another 140 or so points to the Dow level. Hello, Dow 18,075.

While Apple and Goldman Sachs are the stocks that could generate the most gains for the index if analysts' guesses turn out to prescient, sell-side stock prognosticators are actually rather bullish on the whole. If each of the 30 Dow stocks was trading at its median price target instead of its current price, the Dow would be trading above 18,600.

That handily beats the real-life Dow record price of 18,351 seen back in May.

Alex Rosenberg

Source:http://www.cnbc.com/2016/03/31/the-2-stocks-expected-to-take-the-dow-above-18000.html