Booming demand for steady, dividend-paying stocks is fully priced into shares of Merck, said BMO Capital Markets, which downgraded its rating to market perform from outperform. Plus, political risks could weigh on big drug stocks in the run-up to the November presidential election, the firm said.
"There is clearly a strong market demand for diversified, steady growing stocks that pay a relatively attractive dividend," said BMO Capital's Alex Arfaei in a Monday note to clients. "We believe this has been a key driver behind the strong performance for some of the stocks in our major pharma coverage universe, and as a result these stocks now have valuations that are close to our price targets"
Dipping government bond yields and and plateauing interest rates have made major pharmaceutical stocks like Abbvie, Pfizer and Merck look attractive to investors, the analyst said. But that theme has likely played out, he said.