The advent of new technologies and breakthroughs has led to a significant transformation of the pharmaceutical landscape. The market will likely exceed $1 trillion by 2023 due to thousands of compounds currently in the last phases of clinical development and hundreds of new medicines expected to be approved in the upcoming years.
Increasing R&D activities and drug approvals make the industry’s growth prospects bright. Furthermore, the increasing prevalence of chronic diseases and the aging population should drive the industry’s growth. Pharmaceutical spending per capita in the United States stood at around $1,310 in 2021, significantly higher than other developed countries.
The worldwide pharmaceuticals revenue is expected to reach $1.11 trillion in 2022 and grow at a CAGR of 5.2% to reach $1.43 trillion by 2027.
Amid an uncertain macro environment, pharmaceutical stocks are considered safe investments due to inelastic demand for healthcare products and services. So, investors may rely on quality pharmaceutical stocks Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK), AstraZeneca PLC (AZN), and Dr. Reddy's Laboratories Limited (RDY).
Johnson & Johnson (JNJ)
The largest healthcare conglomerate in the world, JNJ researches, develops, and markets a range of healthcare products. It operates through three segments, Consumer Health Products; Pharmaceutical Products; and MedTech. Its primary focus is on issues of human health and well-being.
On November 1, JNJ and Abiomed (ABMD), a pioneer in ground-breaking heart, lung, and kidney support technologies, announced their agreement under which JNJ will acquire through a tender offer all outstanding shares of Abiomed for an upfront payment of $380.00 per share in cash.
The extensive pipeline, specialized cardiovascular portfolio, solid clinical relationships, and skilled workforce of ABMD will enhance JNJ's MedTech offerings. Additionally, it will aid JNJ in carrying out its strategic objectives centered on pharmaceutical and medical technology.
For the fiscal 2022 third quarter ended September 30, 2022, JNJ’s sales in the United States grew 4.1% year-over-year to $12.45 billion, while its overall reported sales increased 1.9% year-over-year to $23.79 billion, with adjusted operational growth of 8.2%. Its net earnings increased 21.6% year-over-year to $4.46 billion, while its EPS grew 22.6% from the year-ago value to $1.68.
The company has increased its dividend for 60 consecutive years. It pays a $4.52 per share dividend annually, which translates to a 2.54% yield on the current price. JNJ’s dividend payout has grown at a 6% CAGR over the past five years. Its four-year average dividend yield is 2.60%.
For the fiscal year ending December 2022, analysts expect JNJ’s EPS to increase by 2.5% year-over-year to $10.05. The company’s revenue for the current fiscal year is expected to increase by 1.4% year-over-year to $95.04 billion. Moreover, JNJ has surpassed the consensus EPS estimates in each of the four trailing quarters.
In addition, analysts expect the company’s EPS and revenue for the next fiscal year (ending December 2023) to grow 3.2% and 2.6% year-over-year to $10.37 and $97.54 billion, respectively.
Over the past month, the stock has gained 3.8% and 5.6% over the past year to close the last trading session at $177.84.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Stability and a B for Value and Quality. Within the Medical-Pharmaceuticals industry, it is ranked #6 of 160 stocks.
Beyond what we stated above, we also have JNJ’s ratings for Growth, Sentiment, and Momentum. Get all JNJ ratings here.
Merck & Co., Inc. (MRK)
MRK provides health solutions via its over-the-counter medications, vaccinations, biological therapies, and animal health products. It operates through two segments, Pharmaceutical and Animal Health. Its clients include drug wholesalers, retailers, hospitals, government agencies, veterinarians, and animal producers.
On December 12, MRK announced the commencement of a cash tender offer to purchase all outstanding shares of common stock of Imago BioSciences, Inc. (IMGO) as disclosed on November 21 in the definitive agreement under which MRK, through a subsidiary, acquired Imago for $36.00 per share in cash for an approximate total equity value of $1.35 billion.
The addition of Imago will augment MRK's pipeline and strengthen the company's presence in the growing field of hematology.
For the fiscal 2022 third quarter ended September 2022, MRK’s pharmaceutical sales increased 13% year-over-year to $12.96 billion, while its total sales grew 14% from the year-ago value to $14.96 billion. Non-GAAP net income that excludes certain items increased 4% year-over-year to $4.70 billion, while its non-GAAP EPS that excludes certain items stood at $1.85, a 4% increase from the prior year’s quarter.
On November 29, MRK's Board of Directors declared a quarterly dividend of $0.73 per share of the company’s common stock for the first quarter of 2023, payable on January 9, 2023, to shareholders of record at the close of business on December 15, 2022.
The company has raised its dividend for 11 consecutive years. It pays a $2.92 per share dividend annually, which translates to a 2.68% yield on the current price. MRK’s four-year average dividend yield is 2.95%. Its dividend payments have grown at a 9.6% CAGR over the past three years.
The consensus EPS estimate of $7.38 for the fiscal year (ending December 2022) indicates a 22.7% year-over-year improvement. Likewise, the current year's consensus revenue estimate of $59.07 billion indicates a rise of 21.3% from the previous year. Moreover, MRK has surpassed the consensus EPS estimates in each of the four trailing quarters, which is impressive.
Shares of MRK have gained 8.6% over the past month and 48.4% over the past year to the last trading session at $108.97.
MRK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Sentiment, and Quality. Within the Medical-Pharmaceuticals industry, it is ranked #12 of 160 stocks.
Click here to see additional ratings of MRK for Growth, Stability, and Momentum.
AstraZeneca PLC (AZN)
AZN is a biopharmaceutical business headquartered in Cambridge, United Kingdom. It specializes in researching, developing, producing, and commercializing prescription medicines. The company also helps general practitioners and specialists worldwide through distributors and regional representative offices.
On November 29, AZN announced an agreement to purchase Neogene Therapeutics Inc. Neogene is a global clinical-stage biotechnology business that pioneered the research, development, and production of next-generation T-cell receptor medicines (TCR-Ts).
Neogene's top-tier TCR discovery abilities and vast manufacturing expertise will supplement the cell therapy capabilities AZN has acquired over the previous three years and enable the business to quicken the development of potentially curative cell therapies for the benefit of patients.
On November 11, AZN's IMFINZI® (durvalumab) in combination with IMJUDO® (tremelimumab) and platinum-based chemotherapy was approved in the United States by the Food and Drug Administration (FDA) for the treatment of adult patients with Stage IV (metastatic) non-small cell lung cancer (NSCLC).
Given the situation's complexity and the fact that many patients still have poor prognoses, this approval emphasizes the significance of providing innovative treatment combinations that increase survival chances for patients.
For the fiscal 2022 third quarter ended September 30, 2022, AZN’s total revenue increased 11.3% year-over-year to $10.98 billion, while its gross profit came in at $8 billion, a 31% increase from the prior year’s quarter. The company’s operating profit was $1.25 billion, compared to an operating loss of $1.67 billion in the prior-year period. Its EBITDA grew 131.5% year-over-year to $2.58 billion.
In addition, the company’s EPS came in at $1.06, compared to a loss per share of $1.10 in the year-ago quarter.
AZN pays a $0.93 per share dividend annually, which translates to a 1.34% yield on the current price. Its dividend payments have grown at a CAGR of 1.2% over the past three years. The company has a four-year average dividend yield of 2.74%.
Analysts expect AZN’s revenue to increase 18.8% year-over-year to $44.46 billion for fiscal 2022 ending December 2022. The company’s EPS for the current fiscal year is expected to increase 69.5% year-over-year to $4.48.
Moreover, analysts expect the company’s revenue and EPS for the next fiscal year (ending December 2023) to grow 4.9% and 10.1% year-over-year to $46.62 billion and $4.93, respectively. Shares of ADM have gained 7.9% over the past month and 26.9% over the past year to close the last trading session at $69.28.
AZN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth and Sentiment. Within the same industry, it is ranked #19 of 160 stocks.
Click here to see additional ratings of AZN for Value, Stability, Quality, and Momentum.
Dr. Reddy's Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is a globally integrated pharmaceutical firm. Its segments include Global Generics; Pharmaceutical Services and Active Ingredients (PSAI); Proprietary Products; and Others. The company is also involved in the biologics industry.
In July, RDY announced that it has entered into a licensing deal with Slayback Pharma LLC of Princeton, New Jersey, to acquire rights to Slayback's Brimonidine Tartrate Ophthalmic Solution 0.025%, the private label version of Lumify® in the United States.
The agreement provides Dr. Reddy’s exclusive rights to the product outside the United States. This will enhance the company's expanding line of OTC eye care products.
For the fiscal 2023 second quarter ended September 30, 2022, RDY’s revenues increased 9.4% from the previous year’s quarter to Rs. 63.06 billion ($763.81 million), while its gross profit increased 21% year-over-year to Rs.37.25 billion ($451.19 million). Profit before tax grew 27% from the year-ago value to Rs 16.11 billion ($195.13 million).
Moreover, the company’s profit for the period rose 12.2% year-over-year to Rs. 11.13 billion ($134.81million) while its EPS of Rs.5/- each stood at Rs 66.89, a 12.1% increase from the prior year’s quarter.
RDY pays a $0.38 per share dividend annually, which translates to a 0.70% yield on the current price. Its four-year average dividend yield is 0.61%. RDY’s dividend payments have grown at a CAGR of 10.3% over the past three years. The company has increased its dividends for three consecutive years.
The consensus EPS estimate of $2.65 for the current fiscal year (ending March 2023) indicates a 17.3% year-over-year improvement. Likewise, the consensus revenue estimate of $2.86 billion for the same year reflects a rise of 3.4% from the prior year.
Furthermore, analysts expect the company’s EPS and revenue for the next fiscal year to rise 10.5% and 9.7% year-over-year to $2.93 and $3.14 billion, respectively. The stock has gained 2.1% over the past five days to close the last trading session at $54.31.
RDY’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary POWR Ratings system.
The stock has a B grade for Growth, Value, Stability, and Sentiment. Within the same industry, it is ranked #5 of 160 stocks.
Beyond what we stated above, we also have RDY’s ratings for Momentum and Quality. Get all RDY ratings here.
JNJ shares were trading at $179.54 per share on Tuesday afternoon, up $1.70 (+0.96%). Year-to-date, JNJ has gained 7.71%, versus a -14.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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