The healthcare sector has been a focal point for investors in 2024, offering a compelling blend of innovation-driven expansion and reliable dividend income. In the past year, top-performing healthcare stocks in the S&P 500 Index ($SPX) have delivered impressive returns, with DaVita Inc. (DVA) leading the pack with a 106% gain, followed closely by Intuitive Surgical (ISRG) at 88% and Universal Health Services (UHS) at 87%.
Recent sector developments have caught major investment firms' attention, with Bernstein initiating coverage of several key players. The firm assigned "outperform" ratings to sector innovators Eli Lilly (LLY), Gilead Sciences (GILD), and Amgen (AMGN). The brokerage firm sees strong growth potential through the end of the decade in these dividend-paying companies, suggesting they're strong picks for investors seeking both capital appreciation and steady passive income.
#1. Eli Lilly and Company (LLY)
Eli Lilly and Company (LLY) is a global pharmaceutical leader known for its robust research and development efforts. The company focuses on creating innovative prescription medicines across various therapeutic areas, including oncology, diabetes, and neuroscience.
When it comes to price action, LLY has been an outperformer. Over the past year, the shares have jumped by an impressive 56.6%, and are down about 7% from the record highs set in August.
Right now, Eli Lilly is valued at about $864 billion, and its forward price-to-earnings (P/E) ratio is 67.98, which is much higher than the industry average of 21.16. This suggests the stock is priced at a premium valuation, with the market pricing in high growth expectations. On a price/earnings-to-growth (PEG) basis, LLY's valuation of 1.64 looks much more reasonable.
In the second quarter of 2024, Eli Lilly's financial results were excellent. They made $11.3 billion in revenue, a 36% increase from the previous year, thanks to strong sales of their blockbuster GLP-1 drugs, Mounjaro and Zepbound. Their earnings per share (EPS) were $3.92, up 86% from last year. After these results, they raised their full-year revenue forecast by $3 billion and adjusted their EPS prediction to between $16.10 and $16.60.
Recent strategic investments highlight Eli Lilly's commitment to innovation and expansion. The company announced a $4.5 billion investment in the Lilly Medicine Foundry in Indiana to enhance drug production capabilities and accelerate clinical trials. Additionally, Lilly is expanding its manufacturing footprint in Ireland with a $1 billion investment in Limerick and an $800 million expansion in Kinsale to support the production of biologic active ingredients for new treatments.
LLY offers a quarterly dividend of $1.30 per share, which translates to a yield of 0.57%. The pharma giant has been increasing its dividends for 10 years straight, backed by a steady and growing base of earnings.
Analysts are very optimistic about Eli Lilly's future, with most giving it a “strong buy” rating. Out of 23 analysts, 20 say it's a “strong buy,” one calls it a “moderate buy,” and two suggest a “hold.” The average target price $1,021.79 for the stock, indicating it could rise by about 13% from its current price.
#2. Gilead Sciences, Inc. (GILD)
Gilead Sciences (GILD) is a leading biopharmaceutical company focused on creating new treatments for serious diseases. They put a lot of effort and money into research and development, especially for antiviral drugs for HIV, hepatitis B and C, and new viral diseases.
Gilead's stock has been on the rise in the past year, up 12.5% in the last 52 weeks.
The company is valued at about $109.8 billion and has a price-to-earnings ratio of 23.26, not too far above the industry average.
For income investors, GILD also offers a quarterly dividend of $0.77 per share with a yield of 3.49%, and has been raising its dividends for nine years in a row.
Gilead Sciences reported solid financial results for Q2 2024, with total revenue increasing 5% to $7.0 billion compared to the same period in 2023. The company's diluted EPS rose to $1.29, while non-GAAP diluted EPS reached $2.01, primarily driven by lower operating expenses and higher revenues. For the full fiscal year 2024, Gilead expects product sales between $27.1 billion and $27.5 billion, with non-GAAP diluted EPS in the range of $3.60 to $3.90.
Recent strategic partnerships highlight Gilead's commitment to expanding access to innovative HIV treatments. The company signed non-exclusive, royalty-free voluntary licensing agreements with six pharmaceutical manufacturers to produce and distribute generic lenacapavir in 120 high-incidence, resource-limited countries. This initiative aligns with Gilead's vision of ending the HIV epidemic globally by enabling broad, sustainable access to lenacapavir for pre-exposure prophylaxis (PrEP) if approved.
Analysts have a positive outlook on Gilead Sciences, giving it a “moderate buy” rating on average. Out of 27 analysts, 15 recommend it as a “strong buy,” one suggests a “moderate buy,” and 11 recommend a “hold.” The average target price is $87.48, in line with today's close.
#3. Amgen Inc. (AMGN)
Amgen Inc. (AMGN) is a major player in biotech, focused on creating new treatments for serious illnesses. To stay at the top of their game, their strategy includes conducting new research, making acquisitions, and expanding around the world.
Over the past 52 weeks, AMGN stock has gained 15.3%. The stock has a market capitalization of approximately $171.5 billion.
Amgen's forward P/E ratio of 16.38 is lower than the typical healthcare stock, suggesting the shares are somewhat undervalued at current levels. The stock offers an attractive quarterly dividend of $2.25 - yielding 2.82% at current levels, backed by a payout ratio of 43.40% and a 13-year history of consecutive dividend increases.
Amgen reported robust financial results for Q2 2024, with total revenues increasing 20% to $8.4 billion compared to the same period in 2023. While GAAP EPS decreased to $1.38 due to higher operating expenses, non-GAAP EPS reached $4.97. For the full year 2024, Amgen projects total revenues between $32.8 billion and $33.8 billion, with non-GAAP EPS expected to range from $19.10 to $20.10.
Recent developments highlight Amgen's commitment to expanding its product portfolio. The company announced the approval of TEPEZZA in Japan for the treatment of Thyroid Eye Disease, marking a significant milestone in addressing this rare autoimmune condition. Additionally, the FDA approved BLINCYTO for treating certain types of acute lymphoblastic leukemia, further strengthening Amgen's oncology offerings.
Analyst sentiment toward Amgen remains cautiously optimistic, with a “moderate buy” consensus rating. Out of 27 analysts, 12 recommend a “strong buy,” 1 suggests a “moderate buy,” 12 advise a “hold,” and 2 back a “strong sell.” The mean target price is set at $334.88, indicating a potential upside of about 6.3% from current levels.
Conclusion
In conclusion, Eli Lilly, Gilead Sciences, and Amgen stand out as compelling choices for investors seeking a blend of growth and dividends in the healthcare sector. Each company showcases strong market performance, innovative product pipelines, and strategic moves that bolster their positions in the industry. With positive analyst ratings and promising outlooks, these stocks offer potential for both short-term gains and long-term stability, making them worthy considerations for any diversified investment portfolio.
