The pharmaceutical industry is set to experience significant growth due to global medical demands, an aging population, technological advancements, and government investments in healthcare infrastructure.
Given the industry’s growth prospects, investors could consider buying fundamentally sound pharma stocks Eli Lilly and Company (LLY), Wave Life Sciences Ltd. (WVE) and Johnson & Johnson (JNJ) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the pharma industry.
The global pharmaceutical market is expected to reach $1.48 trillion by 2028, exhibiting a CAGR of 5.8%. Oncology Drugs is the industry’s largest segment, with an anticipated market volume of $188.20 billion in 2023. Also, The U.S. Pharmaceuticals market is anticipated to achieve a revenue of $603.40 billion in 2023.
The Biden-Harris Administration is implementing new measures to promote healthcare competition and lower prescription drug costs for American families. They have released a proposed framework for agencies to exercise march-in rights on taxpayer-funded drugs, ensuring affordability and reasonable availability.
AI is transforming the pharmaceutical industry through innovation, process optimization, strategic collaborations, and shifting recruiting habits. AI has altered drug research by processing vast amounts of data and uncovering potential treatment options more efficiently. AI-powered robots are now being used in manufacturing operations to increase efficiency and minimize errors.
Moreover, investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 6.5% returns over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the three Medical – Pharmaceuticals stocks, starting with number 3.
Stock #3: Eli Lilly and Company (LLY)
LLY is a global 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 December 5, 2023, LLY announced that its Zepbound™ (tirzepatide) was accessible in U.S. pharmacies for adults dealing with obesity or weight-related medical problems. Approved by the FDA, Zepbound offers six doses and comes with a savings card program to enhance accessibility for eligible individuals. The launch of Zepbound™ by LLY marks a significant milestone in the fight against obesity and weight-related medical conditions.
LLY’s trailing-12-month levered FCF margin of 12.17% is significantly higher than the industry average of 0.26%. Its trailing-12-month EBIT margin of 30.56% is significantly higher than the industry average of 0.78%.
For the third quarter that ended September 30, 2023, LLY generated revenue of $9.50 billion, up 36.8% year-over-year. The company’s non-GAAP gross margin increased 41.5% from the previous-year quarter to $7.76 billion. Its non-GAAP net income and EPS stood at $94.80 million and $0.10, respectively.
Analysts expect LLY’s revenue to grow 17.7% year-over-year to $33.60 billion for the year ending December 2023. Its EPS is expected to come in at $6.64 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 85.4% over past nine months to close the last trading session at $584.04.
LLY’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.
LLY also has a B grade for Growth, Sentiment and Quality. It is ranked #24 out of 157 stocks in the Medical - Pharmaceuticals industry. Click here for the additional POWR Ratings for Value, Stability and Momentum for LLY.
Stock #2: Wave Life Sciences Ltd. (WVE)
Based in Singapore, WVE is a clinical-stage genetic medicine company employing the PRISM platform to develop stereopure oligonucleotides targeting RNA for various disorders, including ALS, Huntington’s disease, and muscular dystrophy. The company collaborates with Pfizer, Takeda, and Glaxo Group Limited.
WVE’s trailing-12-month asset turnover ratio of 0.45x is 13.7% higher than the 0.39x industry average.
In the third quarter ended September 30, 2023, WVE generated revenue of $49.21 million, up significantly from the prior-year quarter. The company’s net income increased 118.6% year-over-year to $7.25 million. Its net income per share attributable to ordinary shareholders increased 116.7% from the previous-year quarter to $0.07.
As of September 30, WVE had $199.92 million in total assets, compared to $146.39 million as of December 31, 2022.
Street expects WVE’s revenue to increase significantly year-over-year to $104.06 million for the year ending December 2023. Its EPS is expected to grow 67.3% year-over-year for the same period. Shares of WVE has gained 6.9% over the past year to close the last trading session at $4.16.
WVE’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
WVE has a B grade for Growth, Sentiment and Quality. It ranks #18 in the same industry. Click here to access additional WVE ratings (Value, Stability and Momentum).
Stock #1: Johnson & Johnson (JNJ)
JNJ is a global healthcare company that develops, manufactures, and sells a diverse range of healthcare products, including consumer health items, pharmaceuticals, and medical devices. With well-known brands like NEUTROGENA and JOHNSON’S, the company serves a wide customer base worldwide.
On November 30, 2023, JNJ MedTech finalized the acquisition of Laminar, Inc., a medical device company focusing on eliminating the left atrial appendage in atrial fibrillation patients. The $400 million deal includes potential milestone payments. Laminar’s unique rotational motion approach received FDA approval for a pivotal study beginning in early 2024. This acquisition marks a significant milestone for JNJ MedTech in expanding its portfolio in the field of atrial fibrillation treatment.
JNJ’s trailing-12-month EBIT margin of 27.97% is significantly higher than the 0.78% industry average. Its trailing-12-month levered FCF margin of 21.46% is significantly higher than the 0.26% industry average.
During the third quarter, JNJ’s worldwide sales to customers and gross profit amounted to $21.35 billion and $14.75 billion, up 6.8% and 6.7% year-over-year, respectively. The company’s adjusted net earnings rose 14.1% year-over-year to $6.78 billion.
Also, its adjusted net earnings per share from continuing operations increased 19.3% from the previous year’s quarter to $2.66.
Street expects JNJ’s revenue to increase 3.7% year-over-year to $88.55 billion for the year ending December 2024. Its EPS is expected to grow 7.7% year-over-year to $10.76 for the same period. JNJ’s shares have gained 5.3% over the past month to close the last trading session at $155.06.
JNJ has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Stability and Quality. It is ranked #10 in the same industry.
Beyond what is stated above, we’ve also rated JNJ for Growth, Sentiment and Momentum. Get all JNJ ratings here.
What To Do Next?
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LLY shares were trading at $582.77 per share on Tuesday morning, down $1.27 (-0.22%). Year-to-date, LLY has gained 60.87%, versus a 22.28% 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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