By Jacob Sonenshine

Pharmaceutical stocks just broke out to new highs -- and earnings could push them even higher.

The State Street SPDR S&P Pharmaceuticals exchange-traded fund is up 32% in the past six months to almost $57. It just needs one more leg higher to reclaim its record high of $65, hit in 2015.

Part of that strength is due to a rediscovery of healthcare generally. The sector was extremely cheap in early August, encouraging buyers to come in -- the State Street Health Care Select Sector SPDR ETF has gained 15% in the past six months. Also helping the rally is that healthcare companies are investing in artificial intelligence to help them identify revenue opportunities with lower costs, potentially lifting profit margins.

Comments at the annual J.P. Morgan Healthcare Conference in January stoked more confidence in the market that pharmaceutical companies can move new drug candidates toward Food and Drug Administration approval -- boosting their earnings potential. Merck stock is up 27% in the past six months, with Gilead Sciences up 24%, Regeneron jumping 38%, Biogen up 35%, and Eli Lilly up 31%.

Those gains have made the pharma stocks more expensive, and the market has begun to reassess their valuations, which now reflect slightly longer-term earnings growth. Analysts covering companies in the pharma fund expect aggregate earnings to grow from a small net loss this year to just over $6 a share by 2028, according to FactSet.

And high valuations leave little room for error. A shortfall on earnings or guidance, or a setback for a drug in a company's pipeline, would knock a stock down. But validation of the brightening earnings picture could keep the stocks rising, as the market can envision earnings growth for a sustained period.

And even at over 13 times 12-month forward earnings for many of the surging large-cap pharma stocks, they might not be all that expensive relative to the S&P 500's 22 times. "We see a sector that's arguably cheap and underowned, yet has good fundamentals and the opportunity to enjoy a dual tailwind of EPS growth and higher price/earnings [multiples] over time," says Jason Ware, chief investment officer of Albion Financial Group, which owns the iShares Biotechnology ETF, Amgen, and Merck as long-term holdings.

Now it's time to put up. Amgen reports on Feb. 3, Biogen on Feb. 6, and Vertex Pharmaceuticals on Feb. 12. If they provide positive updates on their pipelines or beat earnings estimates by enough, the stocks could keep rising.

Merck, which reports Feb. 3, looks compelling. The stock trades at 12 times expected EPS for the coming 12 months, the lower end of the range of comparable names, with Amgen at 15 times, for example.

UBS analyst Michael Yee argues Merck has new products in trial phases that could total $20 billion in new annual sales, versus the company's expected $64.8 billion this year. Merck's patent for its widely applicable cancer treatment Keytruda will expire in 2028, and the company's sales could drop by about $10 billion. On net, Merck could eventually add about $10 billion of new annual revenue for a roughly 15% increase.

The new products, currently in trial phases, include HS-10535, an oral GLP-1 that's still preclinical. When Merck announces a date for a Phase 1 trial, it could boost the stock, as the drugmaker will try to grab its share of an obesity market expected to grow to hundreds of billions of dollars. Elsewhere, Merck recently acquired Cidara Therapeutics, which is developing an influenza-prevention treatment. The Phase 3 trial results are expected in the first quarter of this year, so updates from Merck on its earnings call could boost the stock.

"This stock is too cheap," writes Yee, who has a $130 price target on the shares, up 20% from a recent $107.

And that's nothing to sneeze about.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

By Jacob Sonenshine

Pharmaceutical stocks just broke out to new highs -- and earnings could push them even higher.

The State Street SPDR S&P Pharmaceuticals exchange-traded fund is up 32% in the past six months to almost $57. It just needs one more leg higher to reclaim its record high of $65, hit in 2015.

Part of that strength is due to a rediscovery of healthcare generally. The sector was extremely cheap in early August, encouraging buyers to come in -- the State Street Health Care Select Sector SPDR ETF has gained 15% in the past six months. Also helping the rally is that healthcare companies are investing in artificial intelligence to help them identify revenue opportunities with lower costs, potentially lifting profit margins.

Comments at the annual J.P. Morgan Healthcare Conference in January stoked more confidence in the market that pharmaceutical companies can move new drug candidates toward Food and Drug Administration approval -- boosting their earnings potential. Merck stock is up 27% in the past six months, with Gilead Sciences up 24%, Regeneron jumping 38%, Biogen up 35%, and Eli Lilly up 31%.

Those gains have made the pharma stocks more expensive, and the market has begun to reassess their valuations, which now reflect slightly longer-term earnings growth. Analysts covering companies in the pharma fund expect aggregate earnings to grow from a small net loss this year to just over $6 a share by 2028, according to FactSet.

And high valuations leave little room for error. A shortfall on earnings or guidance, or a setback for a drug in a company's pipeline, would knock a stock down. But validation of the brightening earnings picture could keep the stocks rising, as the market can envision earnings growth for a sustained period.

And even at over 13 times 12-month forward earnings for many of the surging large-cap pharma stocks, they might not be all that expensive relative to the S&P 500's 22 times. "We see a sector that's arguably cheap and underowned, yet has good fundamentals and the opportunity to enjoy a dual tailwind of EPS growth and higher price/earnings [multiples] over time," says Jason Ware, chief investment officer of Albion Financial Group, which owns the iShares Biotechnology ETF, Amgen, and Merck as long-term holdings.

Now it's time to put up. Amgen reports on Feb. 3, Biogen on Feb. 6, and Vertex Pharmaceuticals on Feb. 12. If they provide positive updates on their pipelines or beat earnings estimates by enough, the stocks could keep rising.

Merck, which reports Feb. 3, looks compelling. The stock trades at 12 times expected EPS for the coming 12 months, the lower end of the range of comparable names, with Amgen at 15 times, for example.

UBS analyst Michael Yee argues Merck has new products in trial phases that could total $20 billion in new annual sales, versus the company's expected $64.8 billion this year. Merck's patent for its widely applicable cancer treatment Keytruda will expire in 2028, and the company's sales could drop by about $10 billion. On net, Merck could eventually add about $10 billion of new annual revenue for a roughly 15% increase.

The new products, currently in trial phases, include HS-10535, an oral GLP-1 that's still preclinical. When Merck announces a date for a Phase 1 trial, it could boost the stock, as the drugmaker will try to grab its share of an obesity market expected to grow to hundreds of billions of dollars. Elsewhere, Merck recently acquired Cidara Therapeutics, which is developing an influenza-prevention treatment. The Phase 3 trial results are expected in the first quarter of this year, so updates from Merck on its earnings call could boost the stock.

"This stock is too cheap," writes Yee, who has a $130 price target on the shares, up 20% from a recent $107.

And that's nothing to sneeze about.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

By Jacob Sonenshine

Pharmaceutical stocks just broke out to new highs -- and earnings could push them even higher.

The State Street SPDR S&P Pharmaceuticals exchange-traded fund is up 32% in the past six months to almost $57. It just needs one more leg higher to reclaim its record high of $65, hit in 2015.

Part of that strength is due to a rediscovery of healthcare generally. The sector was extremely cheap in early August, encouraging buyers to come in -- the State Street Health Care Select Sector SPDR ETF has gained 15% in the past six months. Also helping the rally is that healthcare companies are investing in artificial intelligence to help them identify revenue opportunities with lower costs, potentially lifting profit margins.

Comments at the annual J.P. Morgan Healthcare Conference in January stoked more confidence in the market that pharmaceutical companies can move new drug candidates toward Food and Drug Administration approval -- boosting their earnings potential. Merck stock is up 27% in the past six months, with Gilead Sciences up 24%, Regeneron jumping 38%, Biogen up 35%, and Eli Lilly up 31%.

Those gains have made the pharma stocks more expensive, and the market has begun to reassess their valuations, which now reflect slightly longer-term earnings growth. Analysts covering companies in the pharma fund expect aggregate earnings to grow from a small net loss this year to just over $6 a share by 2028, according to FactSet.

And high valuations leave little room for error. A shortfall on earnings or guidance, or a setback for a drug in a company's pipeline, would knock a stock down. But validation of the brightening earnings picture could keep the stocks rising, as the market can envision earnings growth for a sustained period.

And even at over 13 times 12-month forward earnings for many of the surging large-cap pharma stocks, they might not be all that expensive relative to the S&P 500's 22 times. "We see a sector that's arguably cheap and underowned, yet has good fundamentals and the opportunity to enjoy a dual tailwind of EPS growth and higher price/earnings [multiples] over time," says Jason Ware, chief investment officer of Albion Financial Group, which owns the iShares Biotechnology ETF, Amgen, and Merck as long-term holdings.

Now it's time to put up. Amgen reports on Feb. 3, Biogen on Feb. 6, and Vertex Pharmaceuticals on Feb. 12. If they provide positive updates on their pipelines or beat earnings estimates by enough, the stocks could keep rising.

Merck, which reports Feb. 3, looks compelling. The stock trades at 12 times expected EPS for the coming 12 months, the lower end of the range of comparable names, with Amgen at 15 times, for example.

UBS analyst Michael Yee argues Merck has new products in trial phases that could total $20 billion in new annual sales, versus the company's expected $64.8 billion this year. Merck's patent for its widely applicable cancer treatment Keytruda will expire in 2028, and the company's sales could drop by about $10 billion. On net, Merck could eventually add about $10 billion of new annual revenue for a roughly 15% increase.

The new products, currently in trial phases, include HS-10535, an oral GLP-1 that's still preclinical. When Merck announces a date for a Phase 1 trial, it could boost the stock, as the drugmaker will try to grab its share of an obesity market expected to grow to hundreds of billions of dollars. Elsewhere, Merck recently acquired Cidara Therapeutics, which is developing an influenza-prevention treatment. The Phase 3 trial results are expected in the first quarter of this year, so updates from Merck on its earnings call could boost the stock.

"This stock is too cheap," writes Yee, who has a $130 price target on the shares, up 20% from a recent $107.

And that's nothing to sneeze about.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 28, 2026 12:48 ET (17:48 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.