3 reasons Bernstein strategists are bullish on the EU pharma sector into 2025

Investing.com — Bernstein analysts are optimistic about the European pharmaceutical sector as it heads into 2025, despite concerns over policy changes and market headwinds. 

The firm outlined its three key reasons for the positive outlook in a note this week

Solid Growth Prospects: Bernstein forecasts an 8% EPS compound annual growth rate (CAGR) from 2025 to 2030, excluding Novo Nordisk (NYSE:). 

This growth is said to be driven by “broad-based unmet needs, demographics, and pharma’s proven ability to innovate”—factors that allow companies to manage healthcare spending effectively. 

The ability of the sector to continue delivering innovation while addressing pressing medical needs positions it for strong long-term growth, according to the firm

Compelling Valuation: “We believe the sector’s robust fundamentals are mispriced at the current low-20s discount to the global market,” said Bernstein.

As the market begins to recognize the true value of European pharma companies, Bernstein anticipates a potential re-rating that could drive future upside. The analysts also note that the sector’s defensive characteristics make it attractive in uncertain times, especially with the ongoing macroeconomic challenges.

Strong Cash Generation: The EU pharma sector is known for its “well-proven capital allocation track record,” according to the firm. 

Bernstein expects robust cash flow generation that will enable companies to fund productive R&D while maintaining strong dividend growth. 

They add that this financial strength gives companies the flexibility to pursue “disciplined/niche M&A” to further enhance their growth prospects.

Additionally, Bernstein highlights key drivers that could spur a re-rating of the sector, including stability in U.S. drug pricing, better pipeline execution, and the potential reform of U.S. Pharmacy Benefit Managers (PBMs).