Merrill Lynch upgraded Sanofi-Aventis ( SNY) to buy from neutral, citing improved prospects of a legal victory. Shares rose 1%.

After a federal appeals court upheld a patent ruling in favor of Sanofi and Bristol-Myers Squibb's ( BMY) Plavix in December, Merrill Lynch pharmaceuticals analyst Graham Parry says the full litigation has an 80% chance of victory. The ruling blocked generic drugmaker Apotex's version of the companies' blockbuster blood thinner from entering the market.

Additionally, Parry says the approval of Sanofi's obesity drug Acomplia in the U.S. in the second quarter could also send shares higher, "as a significant sentiment overhang is removed."

Given low expectations and lack of visibility for the company's research and development pipeline, the French drugmaker could also surprise on the upside, the analyst says. The company could provide updates to its mid- and late-stage clinical trials during its research and development update slated for Feb. 13.

Parry also sees the possibility of a near-term earnings surprise thanks to improved operating margins, and "although more tentative, we believe that Sanofi-Aventis has the potential, should it choose to do so, to increase shareholder returns," for example by increasing dividends or restarting its share buyback.

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