The pharmaceutical industry's expansion is being propelled by factors like improved healthcare accessibility and advancements in nanotechnology and generative AI for drug discovery. Therefore, I believe value investors could consider pharma stocks Merck & Co., Inc. (MRK), Astellas Pharma Inc. (ALPMY), and Taro Pharmaceutical Industries Ltd. (TARO), which seems to be trading at a discount.
The growing aging population and chronic diseases fuel the pharma industry’s growth. Moreover, the improvements in purchasing power and access to quality healthcare for poor and middle-class families worldwide also are driving the development of the global pharma industry.
The global pharmaceutical manufacturing market is expected to grow at a CAGR of 11.3% until 2028.
Moreover, the expanding nanomedicine applications due to technological advancements in nanotechnology are driving the global nanomedicine market. Governmental and corporate institutions have increased their study into nanotechnology, and there has been an increase in the application of this technology in experiments to treat various chronic conditions.
Brainy Insights estimates that the nanomedicine market will reach $396.15 billion by 2031.
Also, continuous advancements in artificial intelligence, including deep learning and machine learning techniques, enhance the capabilities of generative AI in drug discovery. These advancements enable more accurate predictions, efficient optimization, and improved generation of drug candidates.
Therefore, the generative AI in drug discovery market is poised to grow at a CAGR of 27.1% until 2032.
Let’s discuss the stocks mentioned above in detail:
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.
On July 25, 2023, MRK declared a quarterly dividend of $0.73 per share of the company’s common stock for the fourth quarter of 2023, payable on October 6, 2023.
MRK pays $2.92 annually as dividends which translates to a yield of 2.78% at the current price. Its four-year average dividend yield is 2.95%.
On July 21, 2023, MRK announced that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) had recommended the approval of gefapixant, an investigational, non-narcotic, oral selective P2X3 receptor antagonist, developed for the treatment for adults with refractory or unexplained chronic cough.
The CHMP’s recommendation will now be reviewed by the European Commission (EC) for marketing authorization in the European Union (EU), and a final decision is expected later this year.
MRK’s forward non-GAAP PEG of 2.01x is 3% lower than the industry average of 2.08x.
During the fiscal second quarter that ended June 30, 2023, MRK’s sales increased 3% year-over-year to $15.04 billion. Its pharmaceutical sales increased 5.5% year-over-year to $13.46 billion, while animal health sales came in at $1.46 billion. Its gross margin was 73.2% compared with 71.1% in the previous-year quarter.
MRK’s revenue is expected to increase 2.2% year-over-year to $15.29 billion for the fiscal third quarter ending September 2023. Its EPS is expected to increase 5.5% year-over-year to $1.95 in the same quarter. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of MRK have gained 20.9% over the past year to close the last trading session at $105.
MRK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality, Stability, Growth, and Value. It is ranked #12 out of 165 stocks in the Medical - Pharmaceuticals industry.
Beyond what is stated above, we’ve also rated MRK for Momentum and Sentiment. Get all MRK ratings here.
Astellas Pharma Inc. (ALPMY)
Headquartered in Tokyo, Japan, ALPMY manufactures, markets, imports, and exports pharmaceuticals in Japan, the United States, and internationally. Its product portfolio offers treatment of prostate cancer, acute myeloid leukemia, metastatic urothelial cancer, and chronic kidney diseases.
On July 18, 2023, ALPMY and Eko Health Inc. announced that they had entered into a License & Supply Agreement for the global supply and license of Eko's latest digital stethoscope, the CORE 500, and a custom suite of Eko's AI-powered cardiovascular disease detection software.
Working collaboratively with Welldoc, Inc., ALPMY intends to integrate Eko's technology with Welldoc's cardiometabolic digital therapeutics (DTx) capabilities to create a proprietary, non-invasive device-DTx solution for patients with heart failure, currently known as Z1608.
On July 11, ALPMY announced that it had successfully completed the acquisition of IVERIC bio, Inc. (ISEE) with respect to the announcement on April 30, 2023, through its indirect wholly-owned subsidiary Berry Merger Sub, Inc.
ALPMY’s forward EV/Sales of 2.23x is 38.4% lower than the industry average of 3.61x. Its forward P/S multiple of 2.36 is 42.6% lower than the industry average of 4.11.
In the fiscal year 2022 that ended March 31, 2023, ALPMY’s revenue increased 17.2% year-over-year to ¥1.52 trillion ($10.72 billion). The company’s profit for the year and operating profit increased 17.9% and 17.2% from the prior-year period to ¥224.62 billion ($1.58 billion) and ¥286.90 billion ($2.02 billion), respectively. Also, its EPS improved 19.8% from the year-ago quarter to ¥123.42.
Analysts expect ALPMY’s revenue and EPS for the fiscal year 2023 (ending March 2024) to increase significantly and 84.2% year-over-year to $1.53 trillion and $0.80, respectively. Additionally, the company surpassed the revenue estimates in three of the trailing four quarters.
Over the past nine months, the stock declined 1.6% to close the last trading session at $13.92.
It’s no surprise that ALPMY has an overall rating of B, which translates to a Buy in our POWR Ratings system.
ALPMY also has an A grade for Value, Stability, and Quality. It is ranked #15 in the same industry.
For additional ratings for ALPMY for Growth, Momentum, and Sentiment, click here.
Taro Pharmaceutical Industries Ltd. (TARO)
Based in Haifa, Israel, TARO is a science-based pharmaceutical company that develops, manufactures, and markets prescription and over-the-counter pharmaceutical products in the United States, Canada, Israel, and internationally.
TARO’s forward EV/Sales of 0.12x is 96.8% lower than the industry average of 3.62x. Its trailing-12-month EV/EBITDA of 2.15x is 86.1% lower than the industry average of 15.44x.
During the fiscal first quarter that ended June 30, 2023, TARO net sales increased 1.4% year-over-year to $158.90 million. Net income amounted to $10.03 million and net income per ordinary share attributable to TARO amounted to $0.27. Also, its gross profit amounted to $64.08 million.
Shares of TARO have gained 34.7% over the past three months and 22.1% year-to-date to close the last trading session at $35.46.
TRAO’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
TARO has an A grade for Value. It is ranked #16 in the same industry.
Click here to see TARO’s additional POWR Ratings for Growth, Momentum, Quality, Stability, and Sentiment.
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MRK shares were trading at $104.99 per share on Monday morning, down $0.01 (-0.01%). Year-to-date, MRK has declined -4.08%, versus a 18.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
3 Pharma Stocks to Buy for Value Investors StockNews.com
