The pharmaceutical sector is riding a wave of vigorous expansion fueled by the escalating demand for medical drugs and vaccines. The industry's steadfast performance can be attributed to the relentless need for its products, making it less vulnerable to economic fluctuations.
Given this backdrop, investors could consider buying fundamentally robust pharma stocks Eton Pharmaceuticals, Inc. (ETON), Ipsen S.A. (IPSEY), and Merck & Co., Inc. (MRK) for consistent gains.
The pharmaceutical industry demonstrates remarkable stability, sustained by a consistent demand for medicines regardless of economic variations. This durability can be attributed to the pervasive increase in chronic diseases, escalating health consciousness, and amplified investments in research and development.
The robustness of the pharma market is a testament to intensifying healthcare requirements and drug innovation, especially in emerging nations. The global drug discovery market is projected to reach $181.40 billion by 2032, growing at an 8.5% CAGR.
As the U.S. enters the colder months, respiratory virus season is imminent. The anticipated rise in influenza and COVID-19 cases will further elevate the necessity for medical treatments and associated vaccines.
Global spending on medications reveals a significant surge, potentially culminating in a staggering $1.9 trillion by 2027. This growth trajectory is estimated to progress at a rate of 3% to 6%, propelled by the introduction of new drugs and the expanded application of recently launched brands.
Moreover, the pharma industry is experiencing rapid technological advancements accompanied by an increasing preference for generic drugs due to the consistent rise in chronic illnesses, aging demographics, pioneering achievements in gene therapy, and enhanced post-treatment care. As per Statista, revenue in pharma is expected to reach $1.48 trillion by 2028, growing at a CAGR of 5.8%.
With these favorable trends in mind, let's delve into the fundamentals of the three Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Eton Pharmaceuticals, Inc. (ETON)
ETON is a specialty pharmaceutical company focusing on developing, acquiring, and commercializing pharmaceutical products for rare diseases.
Last month, ETON entered into an agreement to acquire an abbreviated new drug application for Nitisinone Capsules via Oakrum Pharma, LLC’s Chapter 11 bankruptcy proceeding. The U.S. Food and Drug Administration (FDA) approved the acquired product in May 2023 to treat hereditary tyrosinemia type 1 (HT-1) in conjunction with dietary restrictions of tyrosine and phenylalanine.
Currently, Nitisinone's market valuation stands at over $50 million annually. ETON plans to utilize its market competencies, including the Eton Cares program, solid prescriber network, and skilled sales force, to seize a significant stake in this sector. The company remains optimistic about capturing substantial market share in this segment.
ETON’s trailing-12-month levered FCF margin of 13.94% is significantly higher than the industry average of 0.25%. Its trailing-12-month asset turnover ratio of 1.08x is 183.6% higher than the 0.38x industry average.
ETON’s revenue grew at a CAGR of 268.9% over the past three years. In addition, its tangible book value and total assets grew at 24.6% and 28.6% CAGRs, respectively, over the past three years.
For the fiscal second quarter that ended June 30, 2023, ETON’s total net revenues stood at $12 million, up 63% year-over-year, while its gross profit grew 109.9% from the year-ago quarter to $9.68 million. Its income from operations stood at $3.88 million, compared to the loss from operations of $1.34 million in the prior-year quarter.
ETON’s net income came at $4.56 million, compared to the net loss of $1.56 million, while net income per share stood at $0.18, compared to net loss per share of $0.06. Moreover, as of June 30, 2023, ETON’s total current assets stood at $26.33 million, compared to $20 million as of December 31, 2022.
The consensus revenue estimate of $30.58 million for the year ending December 2023 represents a 43.9% increase year-over-year. Its EPS for the year is expected to increase 72.2% year-over-year. It has surpassed EPS estimates in each of the trailing four quarters and revenue in three of the trailing four quarters, which is impressive.
ETON’s shares have 57.5% year-to-date to close the last trading session at $4.44. Over the past year, it gained 76.9%.
ETON’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ETON has an A for Sentiment and a B for Value and Quality. It is ranked #33 out of 151 stocks in the Medical - Pharmaceuticals industry.
For ETON’s additional ratings (Growth, Momentum, and Stability), click here.
Stock #2: Ipsen S.A. (IPSEY)
Based in Boulogne-Billancourt, France, IPSEY is a biopharmaceutical company specializing in oncology, neuroscience, and rare diseases. It operates through two segments: Specialty Care and Consumer Healthcare. The company also excels in neurotoxin research.
On August 16, the U.S. FDA approved IPSEY’s Sohonos (palovarotene) capsules, the first and only treatment for patients aged eight years and older for females and 10 years and older for males with fibrodysplasia ossificans progressive, as a retinoid indicated for the reduction in volume of new heterotopic ossification in adults and pediatric. This should bode well for the company.
The company has a record of paying dividends for 12 consecutive years. Its annualized dividend rate of $0.32 per share translates to a dividend yield of 1.08% on the current share price. Its four-year average yield is 1.21%. IPSEY’s dividend payments have grown at CAGRs of 8% and 1.7% over the past three and five years, respectively.
IPSEY’s trailing-12-month EBITDA margin of 32.43% is 548.4% higher than the industry average of 5%. Its trailing-12-month EBIT margin of 26.54% is significantly higher than the 0.15% industry average.
IPSEY’s revenue grew at CAGRs of 6.6% and 8.7% over the past three and five years, respectively. In addition, its total assets grew at 12.9% and 13.1% CAGRs over the same periods.
IPSEY’s sales during the fiscal third quarter that ended September 30, 2023, stood at €772.40 million ($819.97 million).
In the first half of 2023, which ended June 30, 2023, IPSEY’s total revenue and gross profit increased 8.4% and 7.8% year-over-year to €1.62 billion ($1.72 billion) and €1.35 billion ($1.44 billion), respectively. Its free cash flow increased 9.6% year-over-year to €371.50 million ($394.38 million).
For the same period, the company’s core operating income stood at €523.20 million ($555.42 million). Its core consolidated net profit and core earnings per share attributable to IPSEY shareholders stood at €393 million ($417.21 million) and €4.73, respectively.
For the fiscal year 2023, the company expects total sales growth of over 6%, and the core operating margin is expected to be greater than 30% of total sales.
The consensus revenue estimate of $3.47 billion for the year ending December 2023 represents a 6.8% increase year-over-year.
The stock has gained 10% year-to-date to close the last trading session at $29.57. Over the past year, it gained 15.4%.
IPSEY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
IPSEY has an A grade for Value and a B for Stability and Quality. It is ranked #20 within the same industry.
Click here for the additional POWR Ratings for Growth, Momentum, and Sentiment for IPSEY.
Stock #1: Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments: Pharmaceutical and Animal Health.
Recently, MRK announced that the U.S. FDA has approved KEYTRUDA, MRK’s anti-PD-1 therapy, in combination with gemcitabine and cisplatin, for the treatment of patients with locally advanced unresectable or metastatic biliary tract cancer. This should bode well for the pharma giant.
The company has paid dividends to its shareholders for 33 consecutive years. Its annualized dividend rate of $2.92 per share translates to a dividend yield of 2.84% on the current share price. Its four-year average yield is 2.96%. MRK’s dividend payments have grown at CAGRs of 7.9% and 9.8% over the past three and five years, respectively.
MRK’s trailing-12-month EBITDA margin of 21.49% is 329.7% higher than the industry average of 5%. Its trailing-12-month EBIT and levered FCF margins of 15.57% and 6.10% are significantly higher than the industry averages of 0.15% and 0.25%, respectively.
MRK’s revenue grew at CAGRs of 11.8% and 7.3% over the past three and five years, respectively. In addition, its total assets grew at 4.9% and 4.2% CAGRs over the same periods.
During the fiscal third quarter that ended September 30, 2023, MRK’s sales increased 6.7% year-over-year to $15.96 billion. Its pharmaceutical sales increased 10% year-over-year to $14.26 billion. Its gross margin was 73.3%. Non-GAAP net income attributable to MRK and non-GAAP EPS stood at $5.43 billion and $2.13, up 15.4% and 15.1% year-over-year, respectively.
MRK increased its full-year 2023 guidance and expects sales between $59.70 billion and $60.20 billion, while its non-GAAP EPS is expected to come between $1.33 and $1.38.
Street expects MRK’s revenue for the fiscal year ending December 2023 to increase 1% year-over-year to $59.89 billion. Its EPS is expected to be $1.38 for the same period. It has surpassed revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 3.5% over the past year to close the last trading session at $102.85. Over the past month, it gained marginally.
It’s no surprise that MRK has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Stability and Quality. It is ranked #17 in the same industry.
Beyond what is stated above, we’ve also rated MRK for Growth, Value, Momentum, and Sentiment. Get all MRK ratings here.
What To Do Next?
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MRK shares rose $0.15 (+0.15%) in premarket trading Friday. Year-to-date, MRK has declined -5.39%, versus a 13.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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