Overall, the life science, healthcare and drug discovery sectors have stood out as a beacon of light in an otherwise sluggish post-COVID economy, and we have seen significant growth and innovation across all three areas. Against this backdrop, investors might consider quality pharma stocks Zoetis Inc. (ZTS), Bristol-Myers Squibb Company (BMY), and Teva Pharmaceutical Industries Limited (TEVA) to guard their portfolio.
The United States has a thriving pharmaceutical market that is constantly evolving to meet the changing needs of patients. Consumers are increasingly seeking out personalized and targeted treatments for their medical conditions. This has led to a rise in the demand for precision medicine, which involves tailoring treatments to specific genetic and biological characteristics of individual patients.
Additionally, there is a growing interest in natural and alternative remedies, which has led to an increase in the sales of dietary supplements and herbal medicines. Revenue in the pharmaceuticals market is expected to grow at a CAGR of 6% until 2028.
Furthermore, the pharma industry’s robustness is a testament to the escalating health needs and the revolutionary wave of drug development, particularly in developing economies. Also, supportive governmental funding and reimbursements are incentivizing the development of novel drugs. The worldwide drug discovery market is projected to reach $181.40 billion by 2032, growing at a CAGR of 8.5%.
With these favorable trends in mind, let's delve into the fundamentals of the three best Medical - Pharmaceuticals stocks, beginning with the third choice.
Stock #3: 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.
ZTS’s trailing-12-month gross profit margin of 70.40% is 23.4% higher than the industry average of 57.06%. Its trailing-12-month EBIT margin of 36.53% is significantly higher than the industry average of 0.16%.
Over the past five years, its net income grew at CAGRs of 14.4%, while its EBITDA grew at 9.3% CAGR over the same period.
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 fourth quarter ended December 2023 to increase 14.6% and 7.4% year-over-year to $2.19 billion and $1.32, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has soared 18.2% over the past three months to close the last trading session at $190.17.
ZTS’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Stability, and Quality. It is ranked #16 in the 163-stock Medical - Pharmaceuticals industry.
Beyond what is stated above, we’ve also rated ZTS for Momentum, Sentiment, and Value. Get all ZTS ratings here.
Stock #2: Bristol-Myers Squibb Company (BMY)
BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience diseases.
On January 23, 2024, BMY announced that it had successfully completed its acquisition of Mirati Therapeutics, Inc. (Mirati). With the completion of the acquisition, Mirati shares have ceased trading on the NASDAQ Global Select Market and Mirati is now a wholly owned subsidiary of BMY.
BMY’s trailing-12-month gross profit margin of 76.63% is 34.3% higher than the industry average of 57.06%. Its trailing-12-month levered FCF margin of 27.9% is significantly higher than the industry average of 0.13%.
Over the past five years, its net income grew at CAGR of 10.3%, while its EBITDA grew at 25.6% CAGR over the same period.
For the fourth quarter, which ended December 31, 2024, BMY’s total revenues increased marginally year-over-year to $11.48 billion. Net earnings attributable to BMY stood at $1.76 billion and EPS came in at $0.87.
Street expects BMY’s revenue to grow marginally year-over-year to $11.38 billion for the fiscal first quarter ending March 2024. Its EPS is expected to be $1.68 in the same quarter. The company surpassed the EPS estimates in three of the trailing four quarters.
BMY’s shares have declined 6.2% over the past three months to close the last trading session at $47.98.
It’s no surprise that BMY has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
BMY has an A grade for Value and a B in Quality, Growth, and Stability. It is ranked #10 in the same industry.
In addition to the POWR Ratings highlighted above, one can access BMY’s ratings for Sentiment and Momentum here.
Stock #1: Teva Pharmaceutical Industries Limited (TEVA)
Headquartered in Tel Aviv, Israel, TEVA develops, manufactures, markets, and distributes generic medicines, specialty medicines, and biopharmaceutical products. The company offers sterile products, hormones, high-potency drugs, and cytotoxic substances in various dosage forms, including tablets, capsules, injectables, inhalants, liquids, transdermal patches, ointments, and creams.
TEVA’s trailing-12-month EBITDA margin of 25.69% is 400.8% higher than the industry average of 5.13%. Its trailing-12-month cash per share of 2.88x is 125.4% higher than the industry average of 1.28x.
Over the past five years, its levered FCF grew at CAGR of 2.9%.
During the fourth quarter that ended December 31, 2023, TEVA net revenues increased 14.8% year-over-year to $4.46 billion. The company’s gross profit was $2.42 billion, up 36.5% from the previous year’s quarter. Also, net income came in at $465 million as compared to a loss $1.33 billion in the previous quarter. In addition, the company’s EPS came in at $0.41 as compared to negative $1.17 in the previous quarter.
Analysts expect TEVA’s revenue for the first quarter (ending March 2024) to increase 4% year-over-year to $3.81 billion. Further, the company’s EPS is estimated to grow 30.8% year-over-year to $0.52 in the same quarter. Additionally, TEVA topped the consensus revenue estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 41%, closing the last trading session at $12.38.
TEVA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
TEVA has an A grade for Value and Growth and a B in Sentiment. It is ranked #9 in the same industry.
Click here to access the additional TEVA ratings (Momentum, Stability, and Quality).
What To Do Next?
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ZTS shares were trading at $194.58 per share on Tuesday afternoon, up $4.41 (+2.32%). Year-to-date, ZTS has declined -1.19%, versus a 3.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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