The pharmaceutical sector is set for continuous expansion, fueled by a global increase in healthcare expenditures due to an aging population and the escalation of chronic diseases, along with growing demand for specialty drugs and rapid technological progress.
Given the industry’s bright prospects, it could be wise to watch fundamentally strong pharma stocks Zoetis Inc. (ZTS), Viatris Inc. (VTRS), MEI Pharma, Inc. (MEIP), and Amphastar Pharmaceuticals, Inc. (AMPH) for surprising gains in June.
The increasing occurrence of chronic diseases, a growing elderly demographic, higher healthcare spending by governments worldwide, and concerted initiatives aimed at enhancing the affordability and availability of medications are driving expansion in the pharma industry. The U.S. pharmaceutical market is expected to grow at a CAGR of 5.5% from 2024 to 2030.
Moreover, there is a growing demand for specialty drugs, which are used to treat rare diseases and conditions. Global spending on medicine is expected to increase to over 1.9 trillion by the year 2027. However, the United States takes the lead in total medicines spending globally and is expected to remain the top country for medicines spending through 2027.
Besides, the increasing adoption of a range of emerging technologies such as the Internet of Things, advanced analytics, robotics, and automation is transforming all aspects of pharmaceutical manufacturing laboratories. These technologies are being employed in the pharma manufacturing industry to lower costs, save time and labor, and remotely monitor patients' various physiological parameters.
Hence, the global pharma 4.0 market is expected to reach $62.70 billion by 2032, growing at a CAGR of 18.6%.
Also, investors’ interest in pharmaceutical stocks is evident from the VanEck Pharmaceutical ETF’s (PPH) 13.9% returns over the past six months.
So, let’s take a look at the fundamentals of the four Medical - Pharmaceuticals stocks, starting with number 4.
Stock #4: Zoetis Inc. (ZTS)
ZTS discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products in the United States and internationally.
On May 22, 2024, ZTS declared a dividend of $0.432 per share for the third quarter of 2024, payable on September 4, 2024. ZTS pays an annual dividend of $1.73 per share, which translates to a dividend yield of 1.02% on the current share price. Its four-year average yield is 0.67%. ZTS’ dividend payments have grown at a 21.5% CAGR over the past three years.
In terms of the trailing-12-month EBIT margin, ZTS’ 36.01% is considerably higher than the 1.45% industry average. Likewise, its 17.01% trailing-12-month levered FCF margin is significantly higher than the 1.26% industry average. Furthermore, its 70.08% trailing-12-month gross profit margin is 22.7% higher than the 57.11% industry average.
ZTS’ revenue for the first quarter that ended March 31, 2024, rose 9.5% year-over-year to $2.19 billion. Its adjusted gross profit increased 9.3% year-over-year to $1.55 billion. Likewise, ZTS’ attributable adjusted net income stood at $634 million, up 4.4% over the prior-year quarter. Moreover, its adjusted EPS attributable to ZTS grew 5.3% from the year-ago value to $1.38.
Street expects ZTS’ revenue and EPS for the quarter ending June 30, 2024, to increase 6.1% and 6% year-over-year to $2.31 billion and $1.49, respectively. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Over the past month, the stock gained 12.7% to close the last trading session at $170.07.
ZTS’ solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ZTS has a B grade for Sentiment and Quality. It is ranked #40 out of 158 stocks in the Medical - Pharmaceuticals industry.
In addition to the POWR Ratings we’ve stated above, we also have ZTS ratings for Growth, Value, Momentum, and Stability. Get all ZTS ratings here.
Stock #3: Viatris Inc. (VTRS)
VTRS offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars, and Active Pharmaceutical Ingredients (APIs). The company operates in four segments: Developed Markets; Greater China; JANZ; and Emerging Markets.
On May 1, 2024, VTRS launched Unmind as part of its global wellbeing program, Elevate. Unmind is a leading provider of workplace mental health solutions designed by psychologists to help individuals understand and be proactive with their mental health and lead healthier, happier lives.
On April 15, VTRS announced the launch in Canada of PrGlatiramer Acetate Injection 20 mg/mL for once-daily injection, the first generic bioequivalent version of Teva's Copaxone® 20 mg/mL, indicated for the treatment of patients with Relapsing-Remitting Multiple Sclerosis (RMMS), a chronic inflammatory disease of the central nervous system.
VTRS’ trailing-12-month EBIT margin of 13.63% is 838.8% higher than the industry average of 1.45%. Its trailing-12-month EBITDA margin and levered FCF margin of 30.81% and 6.64% are 460.9% and 428.4% higher than the industry averages of 5.49% and 1.26%, respectively.
For the fiscal first quarter that ended March 31, 2024, VTRS’ total revenues and adjusted gross profit stood at $3.66 billion and $2.15 billion, respectively. Its adjusted EBITDA amounted to $1.19 billion. For the same quarter, its adjusted net earnings and EPS stood at $812.70 million and $0.67, respectively.
Analysts expect VTRS’ EPS for the quarter ending December 31, 2024, to increase 9.7% year-over-year to $0.68.
VTRS’ stock has gained 10.4% over the past six months to close the last trading session at $10.41.
VTRS’ bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Growth. VTRS is ranked #38 in the same industry.
Click here to access all VTRS ratings (Momentum, Sentiment, Stability, and Quality).
Stock #2: MEI Pharma, Inc. (MEIP)
MEIP is a clinical-stage pharmaceutical company that focuses on the development and commercialization of various therapies for the treatment of cancer. It develops Zandelisib, an oral phosphatidylinositol 3-kinase delta inhibitor, and Voruciclib, an oral cyclin-dependent kinase 9 inhibitor. It also develops ME-344, a mitochondrial inhibitor.
On April 11, MEIP reported initial data from a clinical study evaluating ME-344 in combination with Bevacizumab in relapsed metastatic colorectal cancer patients. The study reported that 25% of evaluable patients with relapsed metastatic colorectal cancer had no disease progression at Week 16.
The stated data, including progression-free survival, overall survival, and safety results of the combination, represent an important development supporting the potential of ME-344 in combination with Avastin.
MEIP’s trailing-12-month gross profit margin and EBITDA margin of 151.92% and 31.06% are 166% and 465.4% higher than the respective industry averages of 57.11% and 5.49%. Likewise, the stock’s trailing-12-month levered FCF margin of 10.77% is 756.7% higher than the industry average of 1.26%.
During the nine months that ended March 31, 2024, MEIP’s revenues increased 37.9% from the prior year’s period to $65.30 million, and its income from operations was $33.52 million. Its net income came in at $36.18 million, or $5.43 per share, against a net loss of $21.81 million, or $3.27 per share during the year-ago period, respectively.
In addition, the company’s cash and cash equivalents and total assets totaled $2.37 million and $71.26 million as of March 31, 2024, respectively.
Street expects MEIP’s revenue for the fiscal year (ending June 2024) to increase 33.8% year-over-year to $65.30 million, and its EPS for the same period is estimated to be $3.62. Further, MEIP topped the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has plunged 4.9% to close the last trading session at $3.10.
MEIP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Sentiment and Quality. Within the same industry, MEIP is ranked #36.
Click here to access additional ratings of MEIP for Stability, Growth, and Momentum.
Stock #1: Amphastar Pharmaceuticals, Inc. (AMPH)
AMPH manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products in the United States, China, and France. The company operates through two segments, Finished Pharmaceutical Products and Active Pharmaceutical Ingredients (API).
On May 22, 2024, AMPH received approval from the U.S. Food and Drug Administration (FDA) for the Company's Abbreviated New Drug Application (ANDA) for Albuterol Sulfate Inhalation Aerosol, previously known as AMP-008.
This product is for the treatment or prevention of bronchospasm in patients four years of age and older with reversible obstructive airway disease and the prevention of exercise-induced bronchospasm in patients four years of age and older.
AMPH’s trailing-12-month levered FCF margin of 37.79% is significantly higher than the industry average of 1.26%. Its 31.3% trailing-12-month EBIT margin is significantly higher than the 1.45% industry average.
For the first quarter that ended March 31, 2024, AMPH’s net revenues increased 22.7% year-over-year to $171.84 million. Its gross profit grew 22% from the year-ago value to $90.10 million. Its non-GAAP net income came in at $55.30 million, or $1.04 per share, up 72.1% and 67.7% year-over-year, respectively.
Analysts expect AMPH’s EPS for the second quarter (ending June 2024) to increase 19.2% year-over-year to $0.77. The company’s revenue is expected to grow 19.1% year-over-year to $173.54 million for the same period. Moreover, the company has topped the consensus EPS and revenue estimates in three of the four trailing quarters.
AMPH’s stock has surged 5.5% over the past month to close the last trading session at $43.26.
AMPH’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
The stock has a B grade for Growth and Value. Within the same industry, AMPH is ranked #30.
Click here to access additional ratings of AMPH for Stability, Momentum, Quality, and Sentiment.
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ZTS shares were trading at $170.76 per share on Tuesday afternoon, up $0.69 (+0.41%). Year-to-date, ZTS has declined -13.04%, versus a 11.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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