The pharmaceutical sector is popular amongst investors because of its ability to maintain profit margins irrespective of the economic climate. Moreover, the industry is well-positioned for growth thanks to the growing incidence of chronic diseases and the development of drugs for treating rare diseases.
To that end, while it could be wise to buy fundamentally strong pharma stock Johnson & Johnson (JNJ), Calliditas Therapeutics AB (publ) (CALT) could be added to one’s watchlist, and Aurora Cannabis Inc. (ACB) best steered clear of.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the pharmaceutical industry is well-positioned for growth.
According to U.S. pharmaceutical industry statistics, the United States is projected to hold a 43.72% market share in the global pharmaceutical industry in 2023. Additionally, it is anticipated that the U.S. will spend between $605 billion to $635 billion on medicines by the year 2025.
Moreover, increased demand for personalized medicine and targeted therapy is boosting the industry. According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 5.4% to reach $1.44 trillion by 2027.
Investors’ interest in pharmaceutical stocks is evidenced by the VanEck Pharmaceutical ETF's (PPH) impressive 11.9% returns over the past nine months.
Considering these conducive trends, let’s take a look at the fundamentals of the three above-mentioned Medical - Pharmaceuticals stocks.
Stock to Buy:
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates in three segments: Consumer Health Segment, Pharmaceutical Segment, and MedTech Segment.
On July 24, 2023, JNJ announced its intention to split off at least 80.1% of KVUE Inc.'s (KVUE) shares through an exchange offer. This exchange offer is expected to have tax-free status for U.S. Federal income tax purposes. JNJ currently owns 89.6% of KVUE and wants to exchange up to 1,533,830,450 KVUE shares for JNJ shares.
In terms of the trailing-12-month gross profit margin, JNJ’s 67.50% is 21.2% higher than the 55.67% industry average. Likewise, its 27.66% trailing-12-month EBIT margin is significantly higher than the 0.24% industry average. Additionally, its 21.99% trailing-12-month levered FCF margin is significantly higher than the 0.25% industry average.
JNJ’s sales for the second quarter ended 2023 increased 6.3% year-over-year to $25.53 billion. Its gross profit increased 7.6% year-over-year to $17.32 billion. The company’s adjusted net earnings rose 6.5% year-over-year to $7.36 billion. In addition, its adjusted EPS came in at $2.80, representing an 8.1% increase year-over-year.
Street expects JNJ’s EPS for the quarter ending December 31, 2023, to increase 8.4% year-over-year to $2.55. Its revenue for the fiscal year ending December 31, 2024, is expected to increase 3.7% year-over-year to $87.70 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock gained 6.4% to close the last trading session at $163.74.
It’s no surprise that JNJ has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #10 out of 159 stocks in the Medical - Pharmaceuticals industry. It has a B grade for Growth, Stability, and Quality. Click here to see JNJ’s Value, Momentum, and Sentiment ratings.
Stock to Hold:
Calliditas Therapeutics AB (publ) (CALT)
Headquartered in Stockholm, Sweden, CALT is a commercial-stage specialty pharmaceutical company that focuses on identifying, developing, and commercializing pharmaceutical products for the treatment of orphan indications, with an initial emphasis on renal and hepatic diseases.
In terms of the trailing-12-month gross profit margin, CALT’s 96.92% is 74.1% higher than the 55.67% industry average. Likewise, its 0.73x trailing-12-month asset turnover ratio is 93.5% higher than the 0.38x industry average. However, its 0.22% trailing-12-month Capex/Sales is 95.1% lower than the 4.50% industry average.
In the second quarter that ended June 30, 2023, CALT’s net sales increased 320.6% year-over-year to SEK269.38 million ($24.15 million). Its gross profit increased 313.8% year-over-year to SEK255.169 ($22.88 million). The company’s operating loss narrowed by 179.2% year-over-year to SEK75.17 million ($6.74 million).
Additionally, its loss for the period narrowed by 109.3% year-over-year to SEK91.93 million ($8.24 million). Also, its loss per share narrowed 111.7% year-over-year to SEK1.71.
For the quarter ended September 30, 2023, CALT’s EPS is expected to come in at negative $0.14. However, its revenue for the same quarter is expected to increase 23.17% year-over-year to $30.52 million. Over the past six months, the stock has declined 36.3% to close the last trading session at $15.75.
CALT’s POWR Ratings reflect uncertainty. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a B grade for Value and a C for Growth, Stability, Sentiment, and Quality. It is ranked #49 in the same industry. To see CALT’s Momentum ratings, click here.
Stock to Sell:
Aurora Cannabis Inc. (ACB)
Headquartered in Leduc, Canada, ACB produces, distributes, and sells cannabis and cannabis-derivative products in Canada and internationally. It operates through three segments: Canadian Cannabis, European Cannabis, and Plant Propagation.
In terms of the trailing-12-month gross profit margin, ACB’s 2.29% is 95.9% lower than the 55.67% industry average. Likewise, its 0.18x trailing-12-month asset turnover ratio is 51.9% lower than the 0.38x industry average.
ACB’s total net revenues for the fiscal first quarter ended June 30, 2023, came in at $75.11 million. Its loss from operations narrowed 272.9% year-over-year to $16.11 million. The company’s net loss narrowed significantly year-over-year to $28.33 million. Moreover, its loss per share from total operations narrowed significantly year-over-year to $0.08.
Analysts expect ACB’s EPS for the quarter ending September 30, 2023, to come in at negative $0.05. It failed to surpass the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 44.9% to close the last trading session at $0.84.
ACB’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.
It has an F grade for Momentum and a D for Stability and Sentiment. It is ranked #103 in the same industry. In total, we rate ACB on eight different levels. Beyond what we stated above, we also have given ACB grades for Growth, Value, and Quality. Get all the ACB’s ratings here.
What To Do Next?
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JNJ shares were trading at $164.25 per share on Friday morning, up $0.51 (+0.31%). Year-to-date, JNJ has declined -4.96%, versus a 17.62% 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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