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Investing.com -- Morgan Stanley has turned more constructive on two major European drugmakers, lifting both Novartis and Bayer on the back of improved valuation support and clearer fundamental paths into 2026.
The bank upgraded Novartis to Overweight following the stock’s pullback after its third-quarter miss, arguing the setback was driven largely by one-off pressures in legacy products while key growth drivers outperformed.
The downgrade cycle around older brands has now been fully reflected, and the mix shift toward higher-quality assets supports a stronger mid-term outlook, analysts led by Thibault Boutherin said in a note.
The team expects only modest progress in 2026, but sees a clear re-acceleration thereafter as launches such as Rhapsido begin to scale.
"While we expect 2026 growth to be modest, we anticipate acceleration from 2027," the analysts said. "We expect a bullish CMD on 20 November to frame the upside."
Morgan Stanley highlighted that Novartis trades at an attractive multiple relative to its expected “5% sales / 10% EPS CAGR 2026-2029,” and reiterated confidence that business development capacity and pipeline depth can mitigate upcoming loss-of-exclusivity challenges.
The price target was raised to 115 from 110 Swiss francs.
For Bayer, Morgan Stanley shifted its stance from Equal-weight to Overweight, framing the call as a valuation opportunity supported by two pillars: “litigation de-risking following solicitor general opinion” and signs of improving momentum in the pharma division.
The bank also expects further clarity in early 2026 as the U.S. Supreme Court decides whether to accept the key Durnell case, a step that could ease long-running investor concerns tied to glyphosate.
Meanwhile, strengthening trends in products such as Nubeqa and Kerendia give analysts confidence that earnings revisions, which stabilised at the end of 2024, may turn positive again next year.
“After earnings revisions stabilised at the end of 2024, we see potential for positive earnings revisions in 2026 driven by the Pharma business,” the analysts wrote.
The target price was lifted to €40 from €29.