The pharmaceutical industry is expected to grow significantly as a result of global medical demands, aging population, technological advancements, and government investments in healthcare infrastructure, which will drive demand for pharmaceutical products and services.
Therefore, fundamentally strong pharma stocks Johnson & Johnson (JNJ), AstraZeneca PLC (AZN), and Dr. Reddy’s Laboratories Limited (RDY) could be wise additions to your portfolio for quality.
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. This shift aims towards connected, efficient, and agile production that saves time and money. The global pharma 4.0 market is expected to reach $63.17 billion by 2032, increasing at an 18% CAGR.
Investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 8.7% returns over the past three months.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Medical – Pharmaceuticals stocks, beginning with number 3.
Stock #3: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through the broad segments of Consumer Health; Pharmaceuticals; and MedTech.
JNJ has paid dividends for 60 consecutive years. Over the last three years, JNJ’s dividend payouts have grown at 5.8% CAGR. While JNJ’s four-year average dividend yield is 2.62%. Its forward annual dividend of $4.76 translates to a 2.97% yield.
JNJ’s trailing-12-month EBIT margin of 27.66% is significantly higher than the 0.15% industry average, while its trailing-12-month EBITDA margin of 35.09% is 571.3% higher than the industry average of 5.23%.
During the fiscal second quarter that ended July 2, 2023, JNJ’s sales to customers increased 6.3% year-over-year to $25.53 billion. Its gross profit grew 7.6% from the same period in the prior year to $17.32 billion. The company’s adjusted net earnings amounted to $7.36 billion, while its adjusted EPS came in at $2.80, representing a 6.5% and 8.1% increase year-over-year.
JNJ’s revenue is expected to increase by 3.8% year-over-year to $87.78 billion for the year ending December 2024. Its EPS is expected to grow 8.8% year-over-year to $10.92 for the same period. It surpassed EPS estimates in all four trailing quarters. JNJ’s shares have gained 5.2% over the past six months to close the last trading session at $160.48.
JNJ’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JNJ has a B grade for Growth, Stability, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #9 out of 159 stocks. Click here for the additional POWR Ratings for Value, Sentiment and Momentum for JNJ.
Stock #2: AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN is a renowned biopharmaceutical company focusing on discovering, developing, manufacturing, and commercializing prescription medicines. Its marketed products treat oncology, covid-19, respiratory, cardiovascular, renal, and metabolism diseases, etc.
AZN has paid dividends for 24 consecutive years. Over the last three years, AZN’s dividend payouts have grown at 1.18% CAGR. While AZN’s four-year average dividend yield is 2.50%. Its forward annual dividend of $0.93 translates to a 1.36% yield.
AZN’s trailing-12-month EBITDA margin of 39.59% is 657.3% higher than the industry average of 5.23%. Its trailing-12-month EBIT margin of 28.91% is significantly higher than the industry average of 0.15%.
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 after tax 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 $45.79 billion for the year ending December 2023. Its EPS is expected to grow 10.2% year-over-year to $3.67 for the same period. It surpassed EPS estimates in three of four tailing quarters. Over the past year, the stock has gained 10.3% to close the last trading session at $68.14.
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 #6 in the same industry. It has an A grade for Growth and a B for Stability and Quality. To see additional AZN’s rating for Value, Sentiment and Momentum, click here.
Stock #1: Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY operates as an integrated pharmaceutical company through four distinct segments: Global Generics; Pharmaceutical Services & Active Ingredients (PSAI); Proprietary Products and Others.
On August 10, 2023, RDY announced the launch of Saxagliptin and Metformin Hydrochloride Extended-Release Tablets in the United States, a therapeutic comparable generic version of the FDA-approved KOMBIGLYZE® XR tablets. This is good news for the company.
RDY has paid dividends for 22 consecutive years. Over the last three years, RDY’s dividend payouts have grown at 13.1% CAGR. While RDY’s four-year average dividend yield is 0.60%. Its forward annual dividend of $0.48 translates to a 0.71% yield.
RDY’s trailing-12-month EBIT and levered FCF margins of 23.57% and 11.21% are significantly higher than the industry averages of 0.15% and 0.22%, respectively.
In the fiscal first quarter that ended June 30, 2023, RDY’s revenues increased 29.1% year-over-year to $821 million, while its gross profit improved by 52.1% from the year-ago value to $482 million. The company’s profit for the period improved by 17.9% from the prior-year quarter to $171 million, while its earnings per share stood at $1.03, up 18.4% year-over-year.
Analysts expect RDY’s revenue to increase 9.2% year-over-year to $3.29 billion for the year ending March 2024. Its EPS is expected to grow 3.4% year-over-year to $3.46 for the same period. It has surpassed EPS estimates in all four trailing quarters. Over the past year the stock has gained 28.3% to close the last trading session at $68.04.
RDY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has a B grade for Value, Stability, Sentiment and Quality. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated RDY for Growth and Momentum. Get all RDY ratings here.
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JNJ shares were trading at $160.48 per share on Monday afternoon, down $1.20 (-0.74%). Year-to-date, JNJ has declined -7.14%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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