Driven by a skyrocketing demand for medical drugs and vaccines, the pharma is currently experiencing robust expansion. This consistent upsurge in the industry's performance is rooted in the unwavering necessity for its products, thereby insulating it from potential economic instability. Moreover, continuous technological advancements are acting as a catalyst in its evolution.
Given this backdrop, investors could consider buying fundamentally robust pharma stocks Pacira BioSciences, Inc. (PCRX), Eli Lilly and Company (LLY), Viatris Inc. (VTRS), and Zoetis Inc. (ZTS) for steady returns.
The global pharmaceutical industry exhibits remarkable resilience, buoyed by the unassailable necessity for medical products that remain constant despite economic ebbs and flows. This impressive fortitude is primarily influenced by burgeoning chronic disease cases, the growing aging population, increasing health awareness, and significant investments devoted to meticulous research and development.
Moreover, given the incessant demand for health services and products, a potential increase in drug prices in the U.S. could serve as a boon for companies in the sector by enhancing their revenue and profit skyline.
The pharma industry’s robustness is a testament to the escalating health needs and the revolutionary wave of drug development, particularly shining through in developing economies. The worldwide drug discovery market is projected to reach $181.40 billion by 2032, growing at a CAGR of 8.5%.
Pharma companies are increasingly shaped by a drive to innovate and consequently allocate large scales of funding towards research and development. The elaborate process of pharma R&D spans from initial disease-oriented research to rigorous testing of compounds across various pre-clinical as well as clinical trial stages.
2023 was a highly productive period for the pharma industry, with deal value and volume of M&A nearly matching the pre-pandemic levels. In 2024, similar momentum is anticipated, with estimated activity ranging between $225 billion to $275 billion across all sectors. Executives are expected to effectively manage their funds and engage in innovative pursuits that yield clinical differentiation, aiming to navigate the remaining growth hurdles in the second half of the decade.
Cutting-edge technologies like advanced data analytics, AI, blockchain, cloud computing, the Internet of Things, and machine learning – inject transformative capabilities into the pharmaceutical landscape. For instance, the implementation of AI substantially bolsters operations like drug production, clinical trials, R&D, and patient care. Over 60% of healthcare establishments worldwide plan to incorporate AI technologies into their operations.
The global AI in the pharmaceutical market is anticipated to be worth more than $11.81 billion by 2032, expanding at a CAGR of 29.3%.
Given the industry tailwinds, it's time to examine the fundamentals of the four stocks to buy in the Medical - Pharmaceuticals industry, starting with the fourth in line.
Stock #4: Pacira BioSciences, Inc. (PCRX)
PCRX provides non-opioid pain management and regenerative health solutions for healthcare practitioners and their patients.
On November 10, 2023, PCRX received the U.S. Food and Drug Administration approval for its supplemental new drug application (sNDA) to expand the EXPAREL (bupivacaine liposome injectable suspension) label to include administration in adults as an adductor canal block and a sciatic nerve block in the popliteal fossa.
PCRX’s CEO and chairman, Dave Stack, said, “In line with our corporate mission to provide a non-opioid to as many patients as possible, this new indication provides additional flexibility in the use of EXPAREL as a regional analgesic for more than 3 million lower extremity procedures annually, further increasing the utility of EXPAREL for major orthopedic procedures.”
In 2024, PCRX is anticipated to continue to invest in long-term growth initiatives to ensure that the company is well positioned to fully capitalize on the substantial opportunities ahead of it, including the upcoming launch of EXPAREL in two key lower extremity nerve blocks in 2024 and expansion of patient access with the rollout of the NOPAIN Act in 2025.
PCRX’s trailing-12-month levered FCF margin of 18.41% is significantly higher than the industry average of 0.29%. Likewise, its trailing-12-month EBIT margin of 11.73% is significantly higher than the industry average of 0.90%.
Over the past three and five years, its operation income (EBIT) grew at CAGRs of 26.5% and 41.6%, respectively, while its EBITDA grew at 38.4% and 42.5% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, PCRX’s total revenues and income from operations stood at $163.93 million and $17.72 million, respectively. Moreover, its adjusted EBITDA stood at $52.94 million.
For the same quarter, its non-GAAP net income and non-GAAP net income per common share increased 22.7% and 22% year-over-year to $36.63 million and $0.72, respectively.
Street expects PCRX’s revenue and EPS in the fiscal first quarter ending March 2024 to increase 7.3% and 47.2% year-over-year to $172.07 million and $0.78, respectively.
The stock has gained 26.4% over the past month to close the last trading session at $35.48. Over the past three months, it has gained 19.1%.
PCRX’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Value, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #30 out of 159 stocks.
To see additional POWR Ratings for Momentum, Stability, and Sentiment for PCRX, click here.
Stock #3: Eli Lilly and Company (LLY)
LLY is a pharmaceutical company known for discovering, developing, and marketing a wide range of human pharmaceuticals worldwide. Its diverse product portfolio includes treatments for diabetes, cancer, autoimmune diseases, mental health disorders, and COVID-19.
On January 4, LLY unveiled LillyDirect, a trailblazing digital healthcare platform devised for Americans grappling with obesity, diabetes, and migraines. It offers disease management resources, including access to independent medical professionals, personalized support, and direct home delivery of select LLY medicines through third-party pharmacy dispensing services.
The introduction of LillyDirect is projected to lighten the load endured by patients in managing chronic illnesses, offering a streamlined user experience designed to facilitate improved health outcomes.
In December, LLY acquired POINT Biopharma Global Inc., a radiopharmaceutical company with a pipeline of clinical and preclinical-stage radioligand therapies in development for the treatment of cancer.
LLY acquired all the issued and outstanding shares of common stock of POINT at a purchase price of $12.50 per share in cash, without interest and less any applicable tax withholding. Following the completion of the tender offer, LLY completed the acquisition of POINT through the previously planned second-step merger.
On December 8, 2023, LLY’s board of directors announced a 15% increase in its quarterly dividend and declared a dividend for the first quarter of 2024 of $1.30 per share on outstanding common stock. The dividend is payable to shareholders on March 8, 2024. The company has a record of paying dividends for 34 consecutive years, reflecting upon the company’s strong cash generation ability.
Its annualized dividend rate of $5.20 per share translates to a dividend yield of 0.83% on the current share price. Its four-year average yield is 1.37%. LLY’s dividend payments have grown at CAGRs of 15.2% and 15% over the past three and five years, respectively.
LLY’s trailing-12-month levered FCF margin of 12.17% is significantly higher than the industry average of 0.29%. Likewise, its trailing-12-month EBIT margin of 30.56% is significantly higher than the industry average of 0.90%.
Over the past three and five years, its revenue grew at CAGRs of 11.4% and 7.8%, respectively, while its total assets grew at 9.6% and 5.4% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, LLY’s revenue and non-GAAP gross margin increased 36.8% and 41.5% year-over-year to $9.50 billion and $7.76 billion, respectively. Moreover, its operating income stood at $450.40 million.
For the same quarter, its non-GAAP net income and non-GAAP earnings per share stood at $94.80 million and $0.10, respectively. As of September 30, 2023, its total current assets stood at $23.01 billion, compared to $18.03 billion as of December 31, 2022.
Street expects LLY’s revenue and EPS in the fiscal first quarter ending March 2024 to increase 23% and 55.8% year-over-year to $8.56 billion and $2.52, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 72.5% over the past year to close the last trading session at $626.03. Over the past nine months, it has gained 70%.
LLY’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which indicates Buy in our proprietary rating system.
LLY has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #26.
For LLY’s additional ratings (Value, Momentum, and Stability), click here.
Stock #2: Viatris Inc. (VTRS)
VTRS offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars, and active pharmaceutical ingredients (APIs). The company operates in four segments: Developed Markets; Greater China; JANZ; and Emerging Markets.
On December 15, 2023, VTRS paid shareholders a quarterly dividend of $0.12 for each issued and outstanding share of the company's common stock. Its annualized dividend rate of $0.48 per share translates to a dividend yield of 4.10% on the current share price. Its four-year average yield is 2.46%.
VTRS’ trailing-12-month levered FCF margin of 25.69% is significantly higher than the industry average of 0.29%. Likewise, its trailing-12-month EBIT margin of 13.84% is significantly higher than the industry average of 0.90%.
Over the past three and five years, its revenue grew at CAGRs of 10.3% and 5.9%, respectively, while its EBITDA grew at 11.9% and 6.2% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, VTRS’ total revenues and adjusted gross profit stood at $3.94 billion and $2.33 billion, respectively. Moreover, its adjusted EBITDA stood at $1.36 billion.
For the same quarter, its adjusted net earnings and earnings per share attributable to VTRS shareholders stood at $952.80 million and $0.27, respectively. In the nine months that ended September 30, 2023, its cash, cash equivalents and restricted cash stood at $1.31 billion, up 101.7% year-over-year.
Street expects VTRS’ EPS in the fiscal first quarter ending March 2024 to be $0.74, respectively. Its revenue for the same quarter is expected to increase marginally year-over-year to $3.76 billion. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 21.2% over the past three months to close the last trading session at $11.71. Over the past month, it has gained 19.1%.
VTRS’ solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
VTRS has an A grade for Value and a B for Growth. Within the same industry, it is ranked #21.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, Sentiment, and Quality. Get all ratings of VTRS here.
Stock #1: Zoetis Inc. (ZTS)
ZTS discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products in the United States and internationally.
On December 7, 2023, ZTS’ Board of Directors declared a dividend of $0.43 per share for the first quarter of 2024, an increase of 15% from the quarterly dividend rate paid in 2023. The dividend is payable to the shareholders on March 1, 2024.
Its annualized dividend rate of $1.73 per share translates to a dividend yield of 0.88% on the current share price. Its four-year average yield is 0.63%. ZTS’ dividend payments have grown at CAGRs of 23.3% and 25.4% over the past three and five years, respectively.
ZTS’ trailing-12-month levered FCF margin of 13.75% is significantly higher than the industry average of 0.29%. Likewise, its trailing-12-month EBIT margin of 36.53% is significantly higher than the industry average of 0.90%.
Over the past three and five years, its net income grew at CAGRs of 11.1% and 14.4%, respectively, while its EBITDA grew at 8.9% and 9.3% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, ZTS’ revenue and non-GAAP gross profit increased 7.4% and 8.5% year-over-year to $2.15 billion and $1.52 billion, respectively.
For the same quarter, its non-GAAP net income attributable to ZTS and non-GAAP earnings per common share attributable to ZTS increased 11.1% and 12.4% from the year-ago quarter to $629 million and $1.36, respectively. Moreover, as of September 30, 2023, its total current liabilities stood at $1.61 billion, compared to $3.17 billion as of December 31, 2022.
Street expects ZTS’ revenue and EPS in the fiscal first quarter ending March 2024 to increase 9.8% and 7% year-over-year to $2.20 billion and $1.40, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 32.9% over the past year to close the last trading session at $196.15. Over the past six months, it has gained 17.4%.
ZTS’ robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ZTS has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #11 within the same industry.
Click here for the additional POWR Ratings for ZTS (Value and Momentum).
What To Do Next?
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LLY shares rose $0.97 (+0.15%) in premarket trading Tuesday. Year-to-date, LLY has gained 7.40%, versus a -0.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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