Despite the uncertain economic conditions and persistent market volatility, the inelastic demand, surging investments, and consistent breakthroughs make healthcare stocks attractive to investors. Growing demand for advanced and viable therapies for chronic and emerging diseases and the aging population should drive the sector’s growth.
Investors’ interest in this space is evident from the Vanguard Health Care ETF’s (VHT) 2.5% gains over the past month. The global consumer healthcare market is expected to grow at a 21.7% CAGR to $932.74 billion by 2026.
Broad market reach and diversified product portfolios should allow large-cap healthcare stocks Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK), and UnitedHealth Group Incorporated (UNH) to withstand the current market fluctuations and deliver stable returns.
Johnson & Johnson (JNJ)
With a $451.67 billion market capitalization, JNJ develops, manufactures, sells health care products, and provides related services. It primarily serves the consumer, pharmaceutical, and medical devices and diagnostics markets and distributes its products through retail outlets and distributors, wholesalers, hospitals, and health care professionals for prescription use. It has a 0.59 beta.
JNJ will pay a $1.13 quarterly cash dividend on September 6, 2022. The stock pays a $4.52 per share dividend annually, translating to a 2.63% yield. The company’s dividend has grown at a 5.9% rate over the past five years. JNJ has increased its dividends for 59 consecutive years.
On August 4, 2022, the European Commission granted marketing authorization for the expanded use of JNJ’s Janssen Pharmaceuticals’ IMBRUVICA in an all-oral, fixed-duration (FD) treatment combination with venetoclax (I+V) for adults with chronic lymphocytic leukemia (CLL).
In Europe, IMBRUVICA is already approved as a continuous therapy in several indications across three blood cancers (CLL, mantle cell lymphoma, and Waldenström's macroglobulinemia). This approval will help IMBRUVICA gain wide recognition across various markets.
For the fiscal 2022 second quarter ended July 3, 2022, JNJ’s sales increased 3% year-over-year to $24.02 billion. The company’s gross profit came in at $16.10 billion, up 2.4% from the prior-year period. Its adjusted pre-tax earnings came in at $8.17 billion for the quarter, indicating a 5.1% year-over-year improvement.
While its adjusted net earnings increased 4.3% year-over-year to $6.91 billion, its adjusted EPS rose 4.4% to $2.59. As of July 3, 2022, the company had $10.98 billion in cash and cash equivalents.
Analysts expect an EPS estimate of $10.07 for fiscal 2022 ending December 31, 2022, indicating a rise of 2.8% from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.
The consensus revenue estimate of $95.12 billion for the same fiscal year represents a 1.4% year-over-year improvement. Its EPS is expected to grow at a rate of 4.1% per annum over the next five years. Over the past six months, the stock has gained marginally to close the last trading session at $171.79.
JNJ’s POWR Ratings reflect this promising outlook. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Stability and a B for Growth and Quality. Click here to see the additional ratings for JNJ’s Sentiment, Value, and Momentum. JNJ is ranked #6 of 172 stocks in the Medical - Pharmaceuticals industry.
Merck & Co., Inc. (MRK)
With a $220.68 billion market capitalization, MRK offers health solutions through prescription medicines, vaccines, biological therapies, and consumer care products through its pharmaceutical; and Animal Health segments. Its products are marketed directly and through joint ventures to drug wholesalers and retailers, hospitals, government agencies, and managed health care providers. It has a 0.36 beta.
MRK will pay a $0.69 quarterly cash dividend on October 7, 2022. The stock pays a $2.76 per share dividend annually, translating to a 3.18% yield. The company’s dividend has grown at an 8.8% rate over the past five years. MRK has increased its dividends for 11 consecutive years.
Based on results from the Phase 3 OlympiA trial, on August 4, 2022, the European Commission (EC) has approved LYNPARZA, developed by MRK and British pharmaceutical company AstraZeneca plc (AZN), for the adjuvant treatment of adult patients with germline BRCA-mutated, HER2-negative high-risk early breast cancer.
As breast cancer is the most commonly diagnosed cancer worldwide, this approval is expected to help create huge demand in the coming months.
MRK’S sales for its fiscal 2022 second quarter ended June 30, 2022, increased 28% year-over-year to $23.43 billion. The company’s gross profit came in at ¥687.70 billion ($5.16 billion), up 12.1% from the prior-year period. Its non-GAAP pre-tax income came in at $5.51 billion for the quarter, indicating a 159% rise from the year-ago period.
MRK’s non-GAAP net income came in at $4.74 billion, representing a 204.2% rise from the prior-year period. Its non-GAAP EPS increased 206.6% year-over-year to $1.87. It had $9.68 billion in cash and equivalents as of June 30, 2022.
The consensus EPS estimate of $7.37 for fiscal 2022 ending December 31, 2022, indicates a 22.4% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters.
Analysts expect the company’s revenue to come in at $58.67 billion for the same fiscal year, representing a 20.5% rise from the prior-year period. Its EPS is expected to grow at a rate of 10.5% per annum over the next five years. Over the past six months, the stock has gained 10.5% to close the last trading session at $86.82.
MRK’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has a B grade for Value, Growth, Sentiment, and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see MRK’s Stability and Momentum ratings here. MRK is ranked #4 in the Medical - Pharmaceuticals industry.
UnitedHealth Group Incorporated (UNH)
With a $505.44 billion market cap, UNH is a diversified health care and insurance company that offers a broad spectrum of products and services through UnitedHealthcare and Optum platforms. It provides employers with products and resources to plan and administer employee benefit programs. It has a 0.76 beta.
UNH paid a $1.65 quarterly cash dividend on June 28, 2022. The stock pays a $6.60 per share dividend annually, translating to a 1.27% yield. The company’s dividend has grown at an 18% rate over the past five years. UNH has increased its dividends for 13 consecutive years.
On June 22, 2022, UNH’s Optum launched a comprehensive laboratory benefit management solution that helps health plans better manage lab test utilization. This new solution allows health plans to streamline decisions and automate processes to reduce unnecessary testing for their members and increase cost savings. UNH might witness rising enrollment for their health plans in the future.
For its fiscal 2022 second quarter ended June 30, 2022, UNH’s revenues grew 12.6% year-over-year to $80.33 billion. The company’s earnings from operations came in at $7.13 billion, indicating a 19.3% rise from the year-ago period.
Its adjusted net earnings came in at $5.29 billion, up 17.7% from the prior-year period. UNH’s adjusted EPS increased 18.5% year-over-year to $5.57. As of June 30, 2022, the company had $24.61 billion in cash and cash equivalents.
The consensus EPS estimate of $21.85 for fiscal 2022 ending December 31, 2022, represents a 14.9% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.
Analysts expect UNH’s revenue to be $322.19 billion for the same fiscal year, indicating a 12% year-over-year improvement. The company’s EPS is expected to grow at a 14.4% rate per annum over the next five years. Over the past six months, the stock has gained 10.5% to close the last trading session at $530.11.
UNH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Stability, and Quality. Click here to see the additional ratings for UNH (Value and Momentum). UNH is ranked #3 of 11 stocks in the A-rated Medical - Health Insurance industry.
JNJ shares were trading at $171.00 per share on Friday afternoon, down $0.79 (-0.46%). Year-to-date, JNJ has gained 1.25%, versus a -12.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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