The global pharma industry is predicted to grow in the long run, owing to an aging population’s increasing medical needs, consistent discoveries in treating chronic illnesses, and the adoption of advanced technologies such as AI.
So, I think pharma stocks GoodRx Holdings, Inc. (GDRX), Merck & Co., Inc. (MRK), and Sanofi (SNY) could be worth adding to your portfolio for profits.
The global pharmaceutical market is expected to reach $1.48 trillion by 2028, exhibiting a CAGR of 5.8%. The industry’s largest segment is oncology drugs, with a projected market volume of $188.20 billion in 2023.
Moreover, AI is revolutionizing the pharmaceutical industry through innovation, process improvement, strategic collaborations, and changing recruiting trends.
AI has transformed drug research by processing massive volumes of data and more efficiently discovering possible therapeutic candidates. AI-powered robots are now employed in manufacturing operations to boost efficiency and eliminate errors.
The global generative AI market is expected to grow at 47.5% CAGR until 2030. Investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 5.5% returns over the past three months.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Medical - Pharmaceuticals stocks, beginning with number 3.
Stock #3: GoodRx Holdings, Inc. (GDRX)
GDRX provides a consumer-focused digital healthcare platform in the United States. The Company offers consumers free access for branded and generic medications, medical provider consultations via telehealth, and comprehensive healthcare research and information.
GDRX’s trailing-12-month EV/Sales of 3.39x is 7% lower than the industry average of 3.64x. Its trailing-12-month Price/Sales of 3.45x is 12.6% lower than the industry average of 3.95x.
GDRX’s trailing-12-month EBIT margin of 7.17% is significantly higher than the 0.15% industry average. Its trailing-12-month levered FCF margin of 16.48% is significantly higher than the 0.22% industry average.
GDRX’s net revenue for the second quarter ended June 30, 2023, came in at $189.68 million. Its adjusted EBITDA came in at $53.47 million, up 13.2% year-over-year.
Also, its adjusted net income and EPS came in at $28.39 million and $0.07, up 4.4% and 16.7% year-over-year, respectively.
The consensus revenue estimate of 836.97 million for the year ending December 2024 represents a 10.9% increase year-over-year. Its EPS is expected to grow 115.1% year-over-year to $0.09 for the same period. It surpassed EPS estimates in all the four trailing quarters. GDRX’s shares have gained 18.5% over the past nine months to close the last trading session at $6.35.
GDRX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GDRX has an A grade for Growth and a B for Sentiment and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #21 out of 160 stocks. Click here for the additional POWR Ratings for Value, Stability, and Momentum for GDRX.
Stock #2: Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.
MRK’s trailing-12-month EBITDA margin of 21.14% is 310.1% higher than the industry average of 5.15%. Its trailing-12-month EBIT margin of 14.87% is significantly higher than the 0.15% industry average.
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.
Analysts expect MRK’s revenue to increase 5.5% year-over-year to $62.41 billion for the year ending December 2024. Its EPS is expected to increase 182.6% year-over-year to $8.52 for the same period. It has surpassed EPS estimate in each of the trailing four quarters. The stock has gained 24.7% over the past year to close the last trading session at $107.51.
It’s no surprise that MRK has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Stability, Sentiment and Quality. It is ranked #17 in the same industry.
Beyond what is stated above, we’ve also rated MRK for Value and Momentum. Get all MRK ratings here.
Stock #1: Sanofi (SNY)
Headquartered in Paris, France, SNY is engaged in the research, development, manufacture, and marketing of therapeutic solutions globally. The company operates through the three broad segments of Pharmaceuticals; Vaccines; and Consumer Healthcare.
SNY’s forward EV/EBIT multiple of 10.79 is 36% lower than the industry average of 16.86. Its forward non-GAAP P/E multiple of 11.85 is 38.8% lower than the industry average of 19.35.
SNY’s trailing-12-month EBITDA margin of 30.52% is 492% higher than the industry average of 5.15%. Its trailing-12-month gross profit margin of 69.80% is 25.7% higher than the industry average of 55.53%.
During the fiscal second quarter that ended June 30, 2023, SNY’s net sales amounted to €9.97 billion ($10.96 billion). Its operating income increased 29.8% year-over-year to €1.86 billion ($2.04 billion). The company’s net income and EPS grew 18% and 22.3% from its prior-year quarter to €1.45 billion ($1.59 billion) and €1.15 per share, respectively.
Street expects SNY’s revenue to increase 3% year-over-year to $47.81 billion for the year ending December 2023. Its EPS is expected to come in at $4.47 for the same period. Over the past year the stock has gained 32.1% to close the last trading session at $52.94.
SNY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #13 in the same industry. It has an A grade for Stability and a B for Value. To see additional SNY’s ratings for Growth, Sentiment, Momentum and Quality, click here.
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MRK shares were trading at $105.91 per share on Wednesday morning, down $1.60 (-1.49%). Year-to-date, MRK has declined -3.24%, versus a 17.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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