The pharmaceutical industry has been a fundamental pillar of the global economy for a considerable time, and companies are continuously striving to innovate and outshine their competitors.
Thus, as we approach the end of 2023, this article assesses the fundamentals of two pharma companies, Pfizer Inc. (PFE) and Taro Pharmaceutical Industries Ltd. (TARO), to determine which stock is better equipped to dominate the final quarter of this year.
However, before we head into the comparison of the featured stocks, let us first take a peek into the industry prospects.
The pharma industry is most likely to find itself in a favorable position with rising chronic diseases. Thus, the pharma industry's ability to develop innovative therapies and medications places it in a strategic position to contribute positively to public health amid these prevalent and often complex medical conditions.
Moreover, amid the rising demand for healthcare services worldwide, the industry is continually evolving to meet the increasing healthcare needs of the global population by developing innovative therapies and treatments. The pharmaceutical industry has undergone swift expansion in recent years and is projected to hit $1.50 trillion by 2023.
Looking forward to 2024, the global pharmaceutical industry is poised to embrace a promising new phase propelled by the integration of Artificial Intelligence (AI) into drug discovery processes.
A significant statistic within the pharmaceutical sector highlights the anticipation that AI investment will hit $3 billion by 2025, underscoring the industry’s commitment to incorporating technology that has the potential to reduce the time and costs linked to introducing a new drug to the market.
Furthermore, the rapid integration of technology such as big data analytics, AI, collaborative robotics, and distributed cloud-based services within the pharma industry has led to a notable growth of Pharma 4.0. The global Pharma 4.0 market is projected to achieve $63.17 billion by 2032, growing at an impressive CAGR of 18% spanning 2023 to 2032.
Considering the favorable industry outlook, PFE and TARO should benefit from them. However, TARO appears to have outperformed PFE in terms of price performance by surging 26.5% year-to-date compared to PFE’s 43.8% year-to-date plunge.
In addition, over the past month, TARO’s shares surged 4.9% to close the last trading session at $36.74. Meanwhile, PFE’s shares plummeted 7.9% during the same period to close the last trading session at $28.79.
Keeping all these factors in mind, let us delve deeper into the fundamentals of the featured Medical - Pharmaceuticals stocks for a better perspective.
Recent Financial Results
PFE’s revenue for the fiscal third quarter (ended October 1, 2023) amounted to $13.23 billion. However, its attributable net loss came in at $2.38 billion and $0.42 versus an attributable net income of $8.61 billion and $1.51 per share in the same period last year.
Meanwhile, during the same period, the company’s cash and cash equivalents stood at $3.15 billion, up significantly compared to $410 million as of December 31, 2022.
On the contrary, for the fiscal second quarter, which ended on September 30, 2023, TARO’s net sales increased 13.6% year-over-year to $148.20 million. Its gross profit rose 56.7% from the prior-year quarter to $73.60 million.
Moreover, the company’s net income amounted to $8.55 million and $0.23 per share, compared to a net loss of $2.81 million and $0.07 per share in the same period last year. Also, its operating income came in at $4.74 million versus an operating loss of $6.82 million in the prior year quarter.
Past and Expected Financial Performance
PFE’s revenue has grown at a CAGR of 28.5% over the past three years. Street expects PFE’s revenue for the fiscal fourth quarter (ending December 2023) to be $14.37 billion. However, the company’s EPS for the same quarter is expected to come in at a negative $0.15.
Conversely, TARO’s revenue increased at a marginal CAGR over the past three years. Analysts predict TARO’s revenue and EPS for the fiscal third quarter (ending December 2023) to increase 11.3% and 57.9% year-over-year to $154.91 million and $0.30, respectively.
Profitability
TARO’s trailing-12-month levered FCF margin of 13.07% compares to PFE’s negative trailing-12-month levered FCF margin of 0.69%. Additionally, TARO’s trailing-12-month cash per share of $7.16 is higher than PFE’s trailing-12-month cash per share of $0.56.
Valuation
In terms of forward EV/Sales, PFE is currently trading at 3.11x, significantly higher than TARO, which is trading at 0.13x. Moreover, PFE’s forward Price/Sales multiple of 2.77 is 19.4% higher than TARO’s 2.32. Additionally, PFE’s forward P/E ratio of 38.81x is 16.5% higher than TARO’s 33.32x
Thus, TARO is more affordable.
POWR Ratings
PFE has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, TARO has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PFE’s C grade for Sentiment is justified by its dimmed analyst sentiment for the to-be-reported quarter. On the other hand, TARO’s A grade for Sentiment is in sync with its positive analyst estimates for the to-be-reported quarter.
Among the 156 stocks in the Medical - Pharmaceuticals industry, PFE is ranked #61, while TARO is ranked #2.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Stability, and Quality. Click here to view PFE ratings. Get all TARO ratings here.
The Winner
Amid the favorable industry trends that may impact both PFE and TARO positively, a closer examination of their fundamentals underscores TARO as the more preferable choice.
TARO's financial stability, superior profitability, attractive valuation, and favorable analyst sentiment especially when compared to PFE’s weaker financial performance, lower profitability, a higher valuation, and less favorable analyst sentiment makes it an ideal investment candidate for your portfolio.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Medical - Pharmaceuticals industry here.
What To Do Next?
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PFE shares were trading at $28.81 per share on Thursday afternoon, up $0.02 (+0.07%). Year-to-date, PFE has declined -41.22%, versus a 21.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
Pfizer Inc. (PFE) vs. Taro Pharmaceutical (TARO) - Betting on Which Pharma Stock Will Have Q4 Dominance StockNews.com
