The COVID-19 pandemic raised public awareness of health risks, boosting demand for quality healthcare. With patients becoming more informed and engaged in their health decisions, the need for personalized care has grown, contributing to a thriving healthcare sector. Additionally, increased public investment in healthcare infrastructure enhances the sector's promising outlook.
Therefore, investors might consider investing in fundamentally strong healthcare stocks like Eli Lilly and Company (LLY), Merck & Co., Inc. (MRK), and Abbott Laboratories (ABT), which can thrive in any economy.
The healthcare sector is thriving, fueled by rapid tech advancements that improve efficiency and accessibility, along with increased partnerships driving innovation and solution development. Continuous innovation in pharmaceuticals and medical technologies fuels sector growth, with global pharmaceutical revenues projected to reach $1.16 trillion this year, growing at a 6.2% CAGR to $1.47 trillion by 2028.
Alongside, there is an increasing focus on preventive measures, including MedTech and medical devices like implants and biometric wearables. These innovations aim to lower long-term healthcare costs and enhance population health, particularly in cardiovascular, ortho, and neurological care. As a result, the global medical devices market is projected to reach $886.80 billion by 2032, with a robust CAGR of 6.3%.
Considering these conducive trends, let’s analyze the fundamentals of the three healthcare picks mentioned above.
Eli Lilly and Company (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. The company offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-100, Humalog U-200, Humalog Mix 50/50, insulin lispro, insulin lispro protamine, insulin lispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; Jardiance, Mounjaro, and Trulicity for type 2 diabetes; and Zepbound for obesity.
On October 2, 2024, LLY announced a $4.50 billion investment in the Lilly Medicine Foundry, set to open in late 2027 in Indiana. This facility will combine research and manufacturing to innovate drug production methods and scale up clinical supply for LLY’s growing pipeline.
On September 24, 2024, LLY announced that Kisunla (donanemab-azbt) received approval in Japan for treating early symptomatic Alzheimer's disease, making it the second major market for the drug after the U.S. Kisunla aims to slow cognitive decline in adults with mild cognitive impairment or mild dementia linked to confirmed amyloid pathology.
In terms of the trailing-12-month EBITDA margin, LLY’s 39.83% is 542.3% higher than the 6.20% industry average. Likewise, its 10.92% trailing-12-month Capex / Sales is 226% higher than the 3.35% industry average. Its 35.68% trailing-12-month EBIT margin is considerably higher than the 2.61% industry average.
During the second quarter ended June 30, 2024, LLY’s revenue increased by 36% year-over-year to $11.30 billion. Similarly, its operating income rose by 74.8% year-over-year to $3.71 billion. The company’s non-GAAP net income was $3.54 billion, or $3.92 per share, up 85.9% and 85.8% year-over-year, respectively.
Street expects LLY’s EPS for the quarter ended September 30, 2024, to increase significantly year-over-year to $2.83. Its revenue for the same quarter is expected to increase 28.2% year-over-year to $12.18 billion. It surpassed Street EPS estimates in three of the trailing four quarters. The stock has gained 56.8% year-to-date to close the last trading session at $913.71.
LLY’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #38 out of 159 stocks in the Medical – Pharmaceuticals industry. It has a B grade for Growth. Click here to see LLY’s ratings for Value, Momentum, Stability, Sentiment, and Quality.
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments: Pharmaceutical and Animal Health. The company's offerings include global healthcare solutions in human health pharmaceuticals (oncology, immunology) and preventive vaccines. The Animal Health segment provides veterinary pharmaceuticals, vaccines, and digital health products.
On October 14, 2024, MRK announced a clinical development collaboration with Exelixis to evaluate the investigational drug zanzalintinib in combination with KEYTRUDA for head and neck cancer and with WELIREG for renal cell carcinoma. This collaboration aims to assess the potential benefits of these combinations in pivotal trials for patients with unmet clinical needs.
On October 1, 2024, MRK announced the completion of its acquisition of CN201, a next-generation bispecific antibody for B-cell depletion, from Curon Biopharmaceutical. This addition enhances MRK’s pipeline, with CN201 currently in clinical trials for treating B-cell malignancies and autoimmune diseases.
In terms of the trailing-12-month EBIT margin, MRK’s 31.64% is considerably higher than the 2.61% industry average. Likewise, its 18.88% trailing-12-month levered FCF margin is significantly higher than the 1.54% industry average. Furthermore, its 75.79% trailing-12-month gross profit margin is 31.5% higher than the 57.65% industry average.
MRK’s total sales rose 7.2% year-over-year to $16.11 billion for the second quarter that ended June 30, 2024. MRK’s KEYTRUDA sales increased 15.9% year-over-year to $7.27 billion. Similarly, the company’s non-GAAP net income and non-GAAP EPS were $5.81 billion and $2.28, compared to a non-GAAP net loss of $5.22 billion and $2.06 per share in the same quarter of the prior year, respectively.
Street expects MRK’s revenue for the quarter ended September 30, 2024, to increase 3.3% year-over-year to $16.49 billion. Its EPS for the quarter ending December 31, 2024, is expected to grow considerably year-over-year to $1.92. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock gained 6.8% to close the last trading session at $111.12.
MRK’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
MRK has an A grade for Quality and a B for Value and Stability. It is ranked #10 in the Medical – Pharmaceuticals industry. Click here to access additional ratings of MRK for Growth, Momentum, and Sentiment.
Abbott Laboratories (ABT)
ABT and its subsidiaries discover, develop, manufacture, and sell healthcare products worldwide. They operate in four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices.
On October 10, 2024, ABT announced the completion of enrollment in its global IDE study for the Volt PFA System and the launch of the FOCALFLEX trial for the TactiFlex Duo Ablation Catheter. Additionally, the FDA cleared ABT’s Advisor HD Grid X Mapping Catheter to enhance cardiac mapping in ablation procedures.
On September 5, 2024, ABT announced the U.S. launch of its Lingo Continuous Glucose Monitor, a non-prescription system designed for individuals aiming to enhance their health and wellness through real-time glucose tracking and personalized insights. The Lingo system, featuring a biosensor and mobile app, aims to help users manage their nutrition, exercise, and overall lifestyle.
In terms of the trailing-12-month Capex / Sales, ABT’s 5.52% is 64.6% higher than the 3.35% industry average. Its 13.23% trailing-12-month levered FCF margin is 757.7% higher than the 1.54% industry average. Also, its 17.98% trailing-12-month EBIT margin is 590.2% higher than the 2.61% industry average.
For the first half that ended on June 30, 2024, ABT’s net sales rose 3.1% year-over-year to $20.34 billion. Its operating earnings grew marginally from the year-ago value to $3.06 billion. In addition, the company’s adjusted net earnings stood at $3.73 billion, or $2.12 per share, representing a marginal increase year-over-year.
Analysts expect ABT’s EPS and revenue for the quarter ended September 30, 2024, to increase 5.3% and 4% year-over-year to $1.20 and $10.55 billion, respectively. It surpassed Street EPS and revenue estimates in each of the trailing four quarters. Over the past year, the stock has gained 28.9% to close the last trading session at $117.17.
ABT’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability and Sentiment. Within the Medical - Devices & Equipment industry, it is ranked #20 out of 134 stocks. To see ABT’s Growth, Value, Momentum, and Quality ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
LLY shares were trading at $912.10 per share on Tuesday afternoon, down $17.41 (-1.87%). Year-to-date, LLY has gained 57.23%, versus a 23.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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