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 company outlined three key reasons for the positive outlook in a note this week

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

This growth is said to be driven by “widespread unmet needs, demographics, and pharma’s proven ability to innovate” – factors that allow companies to manage healthcare spending in health effectively.

The sector’s ability to continue to deliver innovation while addressing urgent medical needs positions itself for strong long-term growth, according to the company.

Compulsive Evaluation: “We believe the strong fundamentals in the sector are mispriced in the current low 20s discount to the global market,” Bernstein said.

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

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

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

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

Additionally, Bernstein highlighted key drivers that could trigger a re-rating of the sector, including US drug price stability, better pipeline execution, and the potential reform of US Pharmacy Benefit Managers (PBMs).