A rapidly aging population, rising medical costs worldwide, technology improvements, and government spending on healthcare infrastructure are all expected to contribute to the pharmaceutical industry's substantial expansion.
Given the industry’s long-term growth prospects, investors could consider buying fundamentally strong pharma stocks Eli Lilly and Company (LLY), Teva Pharmaceutical Industries Limited (TEVA), and Johnson & Johnson (JNJ).
Before delving deeper into their fundamentals, let’s first explore the industry landscape better.
The pharmaceutical industry plays a crucial role in today’s world as it helps people live longer and healthier lives. The industry garners the attention of investors, given its defensive nature. Pharma companies enjoy stable demand for their products, helping them maintain their revenues irrespective of the economic cycle.
The industry finds itself in a favorable operating environment due to a rapidly aging population, rising healthcare spending, the prevalence of chronic diseases, the need for personalized medicine, a favorable regulatory environment, and increasing investments in research and development.
Innovations in gene editing, development of novel therapies, biosimilars, and precision medicine are boosting the sector’s prospects. The global pharmaceutical market is expected to reach $1.47 trillion by 2028, exhibiting a CAGR of 6.2%. Also, the U.S. Pharmaceuticals market is anticipated to achieve a revenue of $601.10 billion in 2023.
Moreover, AI is revolutionizing the pharmaceutical industry by driving innovation, optimizing processes, fostering strategic collaborations, and transforming recruitment practices. In drug research, AI efficiently analyzes vast datasets to identify potential treatment options. Additionally, AI-powered robots enhance manufacturing operations, boost efficiency, and reduce errors.
Considering these conducive trends, let’s look at the fundamentals of the three Medical – Pharmaceuticals stocks, starting with number 3.
Stock #3: Eli Lilly and Company (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. It offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-100, Humalog U-200, Humalog Mix 50/50, insulin lispro, insulin lispro protamine, insulin lispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; and Jardiance, Trajenta, and Trulicity for type 2 diabetes.
On October 3, 2023, LLY announced that it is set to acquire POINT Biopharma. This acquisition would expand LLY's oncology capabilities into next-generation radioligand therapies, enhancing its position in cancer treatment.
In terms of the trailing-12-month EBIT margin, LLY’s 30.56% is significantly higher than the 0.81% industry average. Likewise, its 35.28% trailing-12-month EBITDA margin is 553.6% higher than the industry average of 5.40%. Furthermore, the stock’s 12.17% trailing-12-month levered FCF margin is substantially higher than the industry average of 0.25%.
For the fiscal third quarter that ended September 30, 2023, LLY’s revenue increased 36.8% year-over-year to $9.50 billion. The company’s non-GAAP gross margin increased 41.5% over the previous-year quarter to $7.76 billion. Its non-GAAP net income and EPS stood at $94.80 million and $0.10, respectively.
Analysts expect LLY’s revenue and EPS for the quarter ending December 31, 2023, to increase 23.3% and 33.2% year-over-year to $9 billion and $2.78, respectively. Over the past nine months, the stock has gained 76.1% to close the last trading session at $579.76.
LLY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LLY also has a B grade for Growth, Sentiment and Quality. It is ranked #21 out of 158 stocks in the Medical – Pharmaceuticals industry. Click here to see the additional ratings of LLY for Value, Momentum, and Stability.
Stock #2: Teva Pharmaceutical Industries Limited (TEVA)
Headquartered in Tel Aviv, Israel, TEVA develops, manufactures, markets, and distributes generic medicines, specialty medicines, and biopharmaceutical products. The company offers sterile products, hormones, high-potency drugs, and cytotoxic substances in various dosage forms, including tablets, capsules, injectables, inhalants, liquids, transdermal patches, ointments, and creams.
On November 13, 2023, TEVA’s subsidiary Teva Pharmaceuticals International GmbH and Royalty Pharma plc announced their collaboration to further accelerate the clinical research program for TEVA’s olanzapine LAI (TEV-‘749) by entering into a funding agreement of up to $125 million to offset program costs.
The funding agreement aims to support TEVA’s development of olanzapine LAI (TEV-‘749), which is a crucial program for the company.
In terms of the trailing-12-month EBIT margin, TEVA’s 16.82% is substantially higher than the 0.81% industry average. Likewise, its 24.63% trailing-12-month EBITDA margin is 356.3% higher than the industry average of 5.40%. Furthermore, the stock’s 19.63% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.25%.
TEVA’s revenue for the third quarter that ended September 30, 2023, increased 7.1% year-over-year to $3.85 billion. Its non-GAAP gross profit increased 8.1% year-over-year to $2.06 billion. The company’s non-GAAP net income attributable to TEVA increased 2.9% over the prior year quarter to $677 million. Also, its non-GAAP earnings per share attributable to the company rose 1.7% year-over-year to $0.60.
Street expects TEVA’s revenue and EPS for the quarter ending December 31, 2023, to increase 3% and 5.5% year-over-year to $4 billion and $0.75, respectively. Over the past six months, the stock gained 34.4% to close its last trading session at $10.13.
TEVA’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Growth. TEVA is ranked #20 within the same industry. In addition to the POWR Ratings stated above, we have also rated TEVA for Momentum, Stability, Sentiment, and Quality. Get all the TEVA ratings here.
Stock #1: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates in three segments: Consumer Health, Pharmaceutical, and MedTech, and offers products under the brands AVEENO, CLEAN & CLEAR, DR. CI:LABO, NEUTROGENA, OGX, LISTERINE, STAYFREE, BENADRYL, amongst others.
OOn November 30, 2023, JNJ MedTech announced the completion of the acquisition of Laminar, Inc., a medical device company focusing on eliminating the left atrial appendage in patients with non-valvular atrial fibrillation (AFib).
This acquisition marks a significant milestone for JNJ MedTech in expanding its portfolio in the field of atrial fibrillation treatment. The deal will complement Biosense Webster’s strengths in electrophysiology and Intracardiac cho strengths and deepen its presence with interventional cardiologists and electrophysiologists.
In terms of the trailing-12-month net income margin, JNJ’s 35.10% compares to the negative 5.44% industry average. Likewise, its 67.56% trailing-12-month gross profit margin is 19.2% higher than the 56.70% industry average. Additionally, its 0.58x trailing-12-month asset turnover ratio is 47.6% higher than the 0.39x industry average.
For the third quarter ended September 30, 2023, JNJ’s sales increased 6.8% year-over-year to $21.35 billion. Its gross profit increased 6.7% year-over-year to $14.75 billion. The company’s adjusted net earnings from continuing operations after tax increased 14.1% over the prior year quarter to $6.78 billion. In addition, its adjusted EPS came in at $2.66, representing an increase of 19.3% year-over-year.
For the fiscal 2024, JNJ’s revenue and EPS are expected to increase 3.7% and 8.3% year-over-year to $88.51 million and $10.74, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past month, the stock gained 3.7% to close the last trading session at $155.44.
Its no surprise that JNJ has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It is ranked #10 in the Medical - Pharmaceuticals industry. It has a B grade for Value, Stability, and Quality. Click here to see JNJ’s Growth, Momentum, and Sentiment ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
LLY shares were trading at $581.16 per share on Tuesday afternoon, up $1.40 (+0.24%). Year-to-date, LLY has gained 60.42%, versus a 25.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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