The pharmaceutical industry is set to grow in the coming years, thanks to an aging population, heightened toll of chronic diseases, and new technologies. In this article, we'll look at the fundamentals of three pharma stocks that can boost your portfolio: Taro Pharmaceutical Industries Ltd. (TARO), AstraZeneca PLC (AZN) and AbbVie Inc. (ABBV).
According to a report by the IQVIA Institute, the world will spend $1.9 trillion on drugs by 2027, growing at 3-6% per year. This growth will be driven by new drugs coming to market and people using more existing drugs.
Moreover, a midyear survey of investors at Goldman Sachs' 44th annual Global Healthcare Conference revealed that the global pharmaceutical sector has around $700 billion at its disposal to acquire other companies and invest in research and development. This shows that investors are optimistic about opportunities in the healthcare 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.
The pharmaceutical sector is embracing Pharma 4.0 technology, which focuses on interconnectivity, big data analytics, AI, collaborative robotics, and distributed cloud-based service architectures. The global pharma 4.0 market is expected to reach $63.17 billion by 2032, increasing at an 18% CAGR.
Given these encouraging trends and projections, let's take a closer look at the three stocks of the Medical - Pharmaceuticals industry, starting with number three.
Stock #3: Taro Pharmaceutical Industries Ltd. (TARO)
Based in Haifa, Israel, TARO develops, manufactures, and markets prescription and over-the-counter pharmaceutical products in the United States, Canada, Israel, and internationally. It offers its products for various therapeutic categories comprising allergy, analgesic, antibacterial, anti-inflammatory, anti-cancer, etc.
TARO’s trailing-12-month EBITDA margin of 6.09% is 16.6% higher than the 5.23% industry average. Its trailing-12-month cash per share of $3.30 is 159% higher than the $1.28 industry average. Furthermore, the stock’s trailing-12-month levered FCF margin of 13.12% is significantly higher than the 0.55% industry average.
For the first quarter of fiscal 2024, which ended on June 30, 2023, TARO’s net sales increased 1.4% year-over-year to $158.89 million, while its gross profit stood at $64.08 million.
During the same period, the company’s net income and net income per ordinary share amounted to $10.03 million and $0.27, respectively. Also, its net cash provided by operating activities came in at $7.78 million, up significantly from the prior-year period.
Analysts expect TARO’s revenue and EPS for the third quarter (ending December 2023) to increase 17.7% and 21.1% year-over-year to $163.79 million and $0.23, respectively.
TARO’s shares have gained 33.6% over the past six months and 13.9% year-to-date to close the last trading session at $33.07.
TARO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Value and a B for Stability and Sentiment. In the 158-stock Medical - Pharmaceuticals industry, it is ranked #9.
To see additional POWR Ratings for Growth, Momentum, and Quality for TARO, click here.
Stock #2: AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN is a renowned biopharmaceutical company that focuses on discovering, developing, manufacturing, and commercializing prescription medicines. Its marketed products treat oncology, COVID-19, respiratory, cardiovascular, renal, and metabolism diseases.
On October 18, AZN announced that Soliris (eculizumab) had been approved in China for the treatment of adult patients with neuromyelitis optica spectrum disorder (NMOSD) who are anti-aquaporin-4 (AQP4) antibody positive (Ab+). This approval could bolster the company’s footprint in the country.
On September 20, AZN declared that its rare disease group, Alexion, AstraZeneca Rare Disease, had completed a definitive purchase and license agreement to buy a portfolio of preclinical rare disease gene therapy programs and enabling technologies from Pfizer Inc. (PFE). This should add to AZN’s revenue stream.
AZN’s trailing-12-month gross profit margin of 86.96% is 56.2% higher than the 55.67% industry average. Its trailing-12-month EBIT margin and levered FCF margin of 28.91% and 24.58% are considerably higher than the industry averages of 0.42% and 0.55%, respectively.
AZN’s total revenues increased 6% year-over-year to $11.42 billion for the second quarter (ended June 30, 2023), while its operating profit grew 355.7% from the year-ago value to $2.46 billion. The company’s profit for the period and EPS increased 405.6% and 408.7% from the prior-year quarter to $1.82 billion and $1.17, respectively.
Street expects AZN’s revenue to increase 3.2% year-over-year to $45.77 billion for the current fiscal year (ending December 2023). Its EPS is expected to grow 10.2% from the prior year to $3.67 for the same period. It surpassed the consensus EPS estimates in each of the four tailing quarters, which is impressive.
Over the past year, the stock has gained 18.2% to close the last trading session at $64.42.
AZN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has an A grade for Growth and a B for Stability and Quality. To see additional AZN ratings for Value, Momentum, and Sentiment, click here.
Stock #1: AbbVie Inc. (ABBV)
ABBV is a research-based biopharmaceutical company that develops, manufactures, and sells pharmaceuticals worldwide. The company’s product offerings include HUMIRA, SKYRIZI, and RINVOQ.
On October 17, Health Canada approved ABBV's RINVOQ® (upadacitinib) for adults with Crohn's disease. This marks a milestone as it's the first JAK inhibitor approved for Crohn's disease and ulcerative colitis.
In the same month, ABBV announced that it had exercised its exclusive right to acquire Mitokinin, a biotech firm working on a potential disease-modifying treatment for Parkinson's Disease (PD). The acquisition expands ABBV's neuroscience portfolio and offers a novel approach to addressing PD.
ABBV’s trailing-12-month EBIT and levered FCF margins of 36.50% and 42.28% are significantly higher than the industry averages of 0.42% and 0.55%, respectively. Its trailing-12-month EBITDA margin of 52.11% is 896.8% higher than the 5.23% industry average.
ABBV’s net revenues stood at $13.87 billion for the fiscal second quarter that ended June 30, 2023. Its operating earnings increased 37% year-over-year to $4.51 billion. Net earnings attributable to ABBV improved 119% from year-ago value to $2.02 billion. Earnings per share attributable to ABBV came in at $1.14, registering a 123.5% improvement from the prior-year quarter.
The consensus EPS estimate for the next year (ending December 2024) of $11.07 indicates a marginal improvement from the prior year. Its revenue for the same year is expected to be $53.01 billion. It has an impressive earnings surprise history, surpassing EPS estimates in three of the trailing four quarters.
ABBV’s shares have gained 1.7% over the past year and 5.7% over the past three months to close the last trading session at $145.52.
It is no surprise that ABBV has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
ABBV has an A grade for Quality and a B for Value, Stability, and Sentiment. It is ranked #2 within the same industry.
Beyond what has been stated above, we’ve also rated ABBV for Growth and Momentum. Click here to see all POWR Ratings of ABBV.
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.
ABBV shares were trading at $147.29 per share on Friday afternoon, up $1.77 (+1.22%). Year-to-date, ABBV has declined -5.18%, versus a 11.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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