Growing healthcare awareness among individuals, the rising prevalence of chronic diseases, and drug discoveries are contributing to the pharmaceutical industry’s growth. Moreover, the pharma companies are poised to remain resilient, given the inelastic demand for healthcare products and services.
In this article, I evaluated two pharma stocks, Johnson & Johnson (JNJ) and Curaleaf Holdings, Inc. (CURLF), to determine which could be a better buy in July.
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. On the other hand, CURLF is a leading international provider of consumer products in cannabis with a mission to improve lives by providing clarity around cannabis and confidence around consumption.
Before I compare the fundamentals of these stocks, let’s see what’s happening in the pharmaceutical space.
The healthcare sector is anticipated to remain robust in the upcoming months, thanks to rapid technological advancements, an increasing elderly population, and rising healthcare awareness among individuals.
Pharmaceutical companies heavily rely on research and development, investing over 20% of their sales. On the backs of scientific advancements, the pharma industry experienced accelerated change.
Throughout this evolution, the industry is committed to developing innovative products and improving patient care, as a result of which the industry is poised to maintain its resilience in the near future.
Moreover, over the next five years, medicine spending is projected to grow between 1% and 4% on a list price basis. The growth is expected to be driven by the adoption of newly launched innovative products, with an average of 50 to 55 new medicines launching per year over the next five years.
Furthermore, as per Statista, revenue in pharma is expected to reach $1.44 trillion by 2027, growing at a CAGR of 5.4%.
CURLF has gained 10% over the past three months versus JNJ’s 6.8% returns. Over the past month, CURLF has gained 9.1% to close the last trading session at $3.09, while JNJ has gained 5.4% to close the last trading session at $165.52.
But which stock is a better buy now? Let’s find out.
Latest Developments
On June 26, the Janssen Pharmaceutical Companies of JNJ announced new phase 2 data had demonstrated the potential benefit of nipocalimab for pregnant individuals at high risk of early-onset severe Hemolytic Disease of the Fetus and Newborn (HDFN).
If approved, nipocalimab would be the first anti-neonatal Fc receptor (FcRn) treatment and the first approved non-surgical intervention for pregnancies at high risk of HDFN in the United States.
On June 29, CURLF announced that it would begin the adult-use cannabis sales at all four of the company's Maryland dispensaries starting July 1, which was the official first day of legal, adult-use sales in the state.
CURLF’s CEO, Matt Darin, said, "Over the past few years it has been incredible to witness the continued expansion of legalization across the East Coast. We're proud to be a part of this historic day in Maryland and serve the growing community of cannabis consumers across the region.
Recent Financial Results
During the fiscal first quarter that ended April 2, 2023, JNJ’s sales to customers increased 5.6% year-over-year to $24.75 billion, while its gross profit grew 3.3% from the year-ago quarter to $16.35 billion. The company’s adjusted net earnings amounted to $7.07 billion, while its adjusted earnings per share came in at $2.68.
For the same quarter, cash, cash equivalents, and restricted cash stood at $26.87 billion, up 156.8% year-over-year. As of April 2, 2023, JNJ’s total current assets came in at $64.39 billion, compared to $55.29 billion as of January 1, 2023.
For the fiscal first quarter that ended March 31, 2023, CURLF’s total revenue increased 13.7% year-over-year to $336.50 million, while its gross profit decreased marginally from the prior-year quarter to $160.75 million. Its total operating expenses grew 6.9% year-over-year to $144.31 million.
Moreover, net loss and net loss per share attributable to CURLF stood at $54.38 million and $0.07, up 49% and 40%, respectively. For the same quarter, the company’s cash and cash equivalents came in at $115.81 million, down 52.3% from the year-ago quarter.
Past and Expected Financial Performance
JNJ’s revenue has grown at 5.2% and 4.1% CAGRs over the past three and five years, respectively, while CURLF’s revenue has grown at 69.6% and 122.4% CAGRs over the past three and five years, respectively.
JNJ’s EBITDA grew at 5.2% and 4.7% CAGRs over the past three and five years, respectively. CURLF’s EBITDA grew at 55.4% CAGR over the past three years.
For the fiscal years ending December 2023 and 2024, JNJ’s revenue is expected to increase 4.2% and 2.3% year-over-year to $98.89 billion and $101.15 billion, respectively. For the fiscal years 2023 and 2024, Street expects its EPS to come in at $10.65 and $11, up 4.9% and 3.3% year-over-year, respectively.
Furthermore, JNJ’s revenue and EPS for the fiscal third quarter ending September 2023 are expected to come in at $24.82 billion and $2.72, up 4.3% and 6.7% year-over-year, respectively. The company surpassed EPS estimates in each of the four trailing quarters, which is impressive.
CURLF’s revenue for the fiscal year ending December 2023 is expected to increase 2.6% year-over-year to $1.37 billion, while its EPS is expected to remain negative at $0.18. For the fiscal third quarter ending September 2023, CURLF’s revenue is expected to come in at $344.10 million, up 1.3% year-over-year.
However, its EPS for the same quarter is expected to remain negative at $0.04. Moreover, CURLF failed to surpass consensus EPS estimates in each of the four trailing quarters, which is disappointing.
Profitability
JNJ’s trailing-12-month asset turnover of 0.51x compares to CURLF’s 0.40x. JNJ has a trailing-12-month EBIT margin of 27.03% compared to CURLF’s negative 1.62%. Also, JNJ’s trailing-12-month net income of 13.22% compares with CURLF’s negative 28.18%.
Thus, JNJ is more profitable.
Valuation
In terms of forward EV/Sales, CURLF is trading at 2.46x, 50.5% lower than JNJ, which is currently trading at 4.97x. However, JNJ’s forward Price/Cash Flow multiple of 14.51 is 57.8% lower than CURLF’s 34.36. Also, JNJ’s forward EV/EBIT multiple of 15.54 is 41.6% lower than CURLF’s 26.62.
Hence, JNJ is relatively affordable.
POWR Ratings
JNJ has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. On the other hand, CURLF has an overall C rating, which equates to Neutral. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
JNJ’s A grade for Stability is justified by its 60-month beta of 0.54, whereas CURLF’s Stability grade of C is substantiated by its 60-month beta of 1.67.
JNJ’s Quality grade of B is in sync with its trailing-12-month gross profit margin of 66.98%, which is 20.1% higher than the industry average of 55.77%, and trailing-12-month EBITDA margin of 34.39%, which is 873.9% higher than the industry average of 3.53%.
Conversely, CURLF’s C grade for Quality is evident from its trailing-12-month EBITDA margin of 10.92%, which is 209.2% higher than the 3.53% industry average, and its trailing-12-month gross profit margin of 42.02%, which is 24.7% lower than the industry average of 55.77%.
Moreover, JNJ’s B grade for Value is justified as its forward non-GAAP P/E of 15.54x is 25.2% lower than the industry average of 20.76x. Also, its forward Price/Book multiple of 5.57% is 1.9% lower than its five-year average of 5.67.
Conversely, CURLF’s Value grade of C is evident as its forward EV/EBITDA of 10.36x, which is 23.7% lower than its industry average of 13.58x, while its forward EV/EBIT multiple of 26.62 is 55.9% higher than the industry average of 17.07.
Within the Medical - Pharmaceuticals industry, JNJ is ranked #7, while CURLF is ranked #77 out of the 166 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Sentiment, and Growth. Get all ratings of JNJ here. To view CURLF’s ratings, click here.
The Winner
The pharmaceutical industry is anticipated to maintain its upward trajectory due to chronic ailments like diabetes and cancer and a significant increase in senior persons with serious ailments.
However, considering JNJ’s robust profitability scenario, cheaper valuation, and promising bottom-line estimates, the stock could be a better choice over CURLF now.
Moreover, in April 2023, JNJ declared a quarterly dividend of $1.19 per common share, which was paid to shareholders on June 6. Its annualized dividend rate of $4.76 per share yields 2.88% on prevailing prices. JNJ’s four-year average dividend yield is 2.62%.
The company’s dividend payouts have grown at CAGRs of 5.9% and 6% over the past three and five years, respectively. The company has paid dividends for 60 consecutive years, reflecting its reliable dividend payments. Hence, investors could buy the stock to ensure a steady passive income.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Medical - Pharmaceuticals industry here.
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JNJ shares were trading at $163.28 per share on Monday morning, down $2.24 (-1.35%). Year-to-date, JNJ has declined -6.20%, versus a 16.77% 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.
Which Pharma Stock Is the Better July Pick: Johnson & Johnson (JNJ) or Curaleaf Holdings (CURLF)? StockNews.com
