The pharmaceutical sector is well-positioned for growth, thanks to growing healthcare expenses, an increasing global elderly population, and a growing prevalence of lifestyle-related diseases.
Therefore, investors looking to capitalize on the industry tailwinds may consider buying fundamentally strong pharma stocks Amneal Pharmaceuticals, Inc. (AMRX), Dr. Reddy’s Laboratories Limited (RDY), and Novo Nordisk A/S (NVO).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the pharma sector could be a great investment destination now.
The sector is highly stable as the demand for medicines remains resilient, irrespective of the economic cycle. The growth in chronic diseases, rising awareness about physical well-being, and increasing research and development (R&D) investments contribute to the industry’s growth.
According to Goldman Sachs' midyear survey of investors at their 44th annual Global Healthcare Conference, the global pharmaceutical sector has approximately $700 billion available for acquiring other companies and funding research and development. This indicates significant growth opportunities.
Moody’s has a stable outlook for the pharmaceutical industry for the next year or so. Moody’s senior vice president for investor services, Michael Levesque, said, “Rising sales of...drugs treating cancer, autoimmune diseases, and diabetes/obesity will drive 2-4% earnings growth.”
“We could change our outlook to positive if we expect annual EBITDA growth above 4% over a future 12-18 months period. This could occur if there are material new product launches in under-treated diseases, if the impact of patent exposures declines, or if treatments or vaccines for COVID-19 see rising rather than weakening demand,” he added.
Pharma 4.0 technology is becoming increasingly integral to the industry, focusing on interconnectivity, big data analytics, AI, collaborative robotics, and distributed cloud-based service architectures. This trend is expected to drive the global Pharma 4.0 market to $63.17 billion by 2032, registering an impressive 18% CAGR.
The pharmaceuticals market revenue is expected to grow at a CAGR of 5.8% to reach $1.48 trillion by 2028.
Considering these conducive trends, let’s analyze the fundamentals of the three Medical - Pharmaceuticals industry picks, beginning with the third choice.
Stock #3: Amneal Pharmaceuticals, Inc. (AMRX)
AMRX develops, manufactures, markets, and distributes generics, injectables, biosimilars, and specialty branded pharmaceutical products worldwide. The company operates through three segments: Generics, Specialty, and AvKARE.
On October 12, 2023, AMRX announced the addition of two denosumab biosimilars referencing Prolia and XGEVA to its biosimilar pipeline. These products will be developed by mAbxience, with AMRX handling regulatory approval and exclusive commercialization rights in the United States.
Harsher Singh, Senior VP of Amneal Biosciences at AMRX, said, “Our first three commercial U.S. biosimilars are doing very well as our excellent commercial team drives uptake in these competitive categories. We are pleased to partner again with mAbxience on these next two biosimilar candidates, which deepens our pipeline and expands our presence in oncology.”
In terms of the trailing-12-month EBITDA margin, AMRX’s 20.42% is 290.6% higher than the 5.23% industry average. Likewise, its 10.12% trailing-12-month EBIT margin is significantly higher than the 0.24% industry average. Additionally, the stock’s 5.15% trailing-12-month levered FCF margin is significantly higher than the 0.45% industry average.
For the fiscal second quarter ended June 30, 2023, AMRX’s net revenue increased 7.1% year-over-year to $599.05 million. Its gross profit rose 9.7% year-over-year to $220.02 million. The company’s adjusted net income came in at $56.87 million.
However, its adjusted EPS remained flat year-over-year to $0.19. Additionally, its adjusted EBITDA came in at $146.09 million, representing an increase of 8.5% over the prior year quarter.
For the quarter ended September 30, 2023, AMRX’s revenue is expected to increase 10.8% year-over-year to $604.53 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 5.2% year-over-year to $0.13. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 129.2% to close the last trading session at $3.92.
AMRX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #30 out of 157 stocks in the Medical - Pharmaceuticals industry. It has an A grade for Growth and Value and a B for Sentiment. Click here to see AMRX’s Momentum, Stability, and Quality ratings.
Stock #2: Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is an integrated pharmaceutical company worldwide. It operates through Global Generics, Pharmaceutical Services and Active Ingredients (PSAI), and other segments.
On August 10, 2023, RDY announced the launch of Saxagliptin and Metformin Hydrochloride Extended-Release Tablets in the U.S. market. These tablets are a therapeutic equivalent generic version of KOMBIGLYZE XR, approved by the U.S. Food and Drug Administration (USFDA). This generic version of KOMBIGLYZE XR will help RDY generate solid sales in the U.S.
In terms of the trailing-12-month EBIT margin, RDY’s 24.50% is significantly higher than the 0.24% industry average. Likewise, its 0.83x asset turnover ratio is 118.3% higher than the 0.38x industry average. The stock’s 11.79% trailing-12-month levered FCF margin is significantly higher than the 0.45% industry average.
RDY’s revenues for the first quarter that ended June 30, 2023, increased 29.1% year-over-year to ₹67.38 billion ($810.57 million). Its gross profit rose 52.1% year-over-year to ₹39.55 billion ($475.75 million). The company’s profit for the period increased 17.9% from the prior-year quarter to ₹14.03 billion ($168.71 million). Moreover, its earnings per share came in at ₹84.22, representing an increase of 18.4% year-over-year.
Analysts expect RDY’s revenue for the quarter ended September 30, 2023, to increase 6.5% year-over-year to $816.03 million. Its EPS for the fiscal year ending March 31, 2024, is expected to increase 3.4% year-over-year to $3.46. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 27.8% year-to-date to close the last trading session at $66.11.
It’s no surprise that RDY has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Growth, Value, Stability, and Quality. Within the same industry, it is ranked #12. To see RDY’s ratings for Momentum and Sentiment, click here.
Stock #1: Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the research, development, manufacture, and marketing of pharmaceutical products worldwide. The company operates in two segments: Diabetes and Obesity care and Biopharm.
On October 16, 2023, NVO announced its agreement to acquire ocedurenone from KBP Biosciences, a potential treatment for uncontrolled hypertension with applications in cardiovascular and kidney disease. The deal is expected to close by the end of 2023 without impacting NVO’s 2023 operating profit outlook.
Camilla Sylvest, Executive VP, Commercial Strategy & Corporate Affairs at NVO, said, “This deal is closely aligned with our strategic focus on expanding from our core in diabetes into other serious chronic diseases, including through novel drug modalities, to help many more patients living with unmet medical needs.”
In terms of the trailing-12-month levered FCF margin, NVO’s 26.49% is significantly higher than the 0.45% industry average. Its 0.81x trailing-12-month asset turnover ratio is 112.6% higher than the 0.38x industry average. Its 43.20% trailing-12-month EBIT margin is significantly higher than the 0.24% industry average.
NVO’s net sales for the second quarter ended June 30, 2023, increased 31.6% from year-ago value to DKK54.30 billion ($7.70 billion). Its gross profit increased 32% year-over-year to DKK46.44 billion ($6.58 billion).
The company’s net profit rose 45.9% from the year-ago quarter to DKK19.43 billion ($2.75 billion). Moreover, its EBITDA came in at DKK26.07 billion ($3.70 billion), representing an increase of 30.1% over the prior-year quarter.
Street expects NVO’s EPS and revenue for the quarter ended September 30, 2023, to increase 60.5% and 34.9% year-over-year to $0.67 and $8.12 billion, respectively. Over the past year, the stock has gained 80.14% to close the last trading session at $97.43.
NVO’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary system.
It has an A grade for Quality and a B for Sentiment. Within the Medical - Pharmaceuticals industry, it is ranked #5. Click here to see NVO’s Growth, Value, Momentum, and Stability ratings.
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NVO shares were trading at $95.11 per share on Thursday afternoon, down $2.32 (-2.38%). Year-to-date, NVO has gained 41.59%, versus a 9.10% 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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