The medical sector plays a crucial role in the economy, providing essential services aimed at promoting the well-being of individuals. With significant advancements in technology, rising awareness of preventive care, and several breakthroughs and innovations in biotech, the healthcare industry has undergone noticeable transformations.
Following solid earnings release this week, investors are flocking to fundamentally sound medical stocks Vertex Pharmaceuticals Incorporated (VRTX) and McKesson Corporation (MCK) for substantial gains.
The demand for medical services will likely remain robust, driven by a growing aging population, rising prevalence of chronic and rare diseases, and enhanced health awareness among individuals. Also, advancements in medical technology, government healthcare programs, and expanded health insurance coverage should boost the medical sector’s growth.
According to estimates by McKinsey, U.S. healthcare profit pools will grow at a CAGR of 7%, from $583 billion in 2022 to $819 billion in 2027. After profit pools were under pressure in 2023, a solid recovery is expected in 2024, fueled by margin and cost optimization and reimbursement rate increases.
The global healthcare services market is expected to grow from $8.35 trillion in 2023 to $8.96 trillion in 2024 at a CAGR of 7.4%. The market further is projected to reach $10.91 trillion by 2028, expanding at a 5% CAGR. Key market trends include the rising integration of telehealth, a heightened focus on patient-centered care, and the advancement of personalized medicine approaches.
Medical companies are increasingly planning to expand their virtual healthcare options, including digital health. The global telehealth market is projected to total $97.30 billion by 2032, exhibiting a CAGR of 19.7% from 2024 to 2032. Growing need for RPM solutions, consumer preferences for online consultation services, and inclination toward wearable devices boost the market’s prospects.
Emerging digital technologies, including Artificial Intelligence (AI), big data analytics, the Internet of Things (IoT), and cloud computing are transforming the medical industry. For instance, cloud computing in healthcare makes medical record-sharing convenient and safer, automates backend operations, and facilitates the creation and maintenance of telehealth apps.
Moreover, biotechnology is highly crucial for revolutionizing healthcare by increasing medical personalization and individually designed treatments, enhancing patient outcomes. In recent years, transformative biotech breakthroughs like genome sequencing and gene editing have laid the foundation for personalized medicine.
Given the industry’s promising prospects, fundamentally strong medical stocks VRTX and MCK could be ideal buys for potential gains.
Let’s discuss the fundamentals of these stocks in detail:
Vertex Pharmaceuticals Incorporated (VRTX)
VRTX is a biotechnology company that engages in developing and commercializing therapies for treating cystic fibrosis (CF). The company’s product portfolio includes TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO. It markets and sells its products to specialty and retail pharmacies or pharmacy chains, hospitals, and clinics.
On February 6, 2024, VRTX announced positive results from the pivotal trials of its once-daily vanzacaftor/tezacaftor/deutivacaftor program for the treatment of cystic fibrosis (CF), a progressive. Vertex further plans to file for approval with global regulators for patients with CF ages six years and older by mid-2024 and use priority review voucher in the U.S.
On January 17, VRTX announced the U.S. Food and Drug Administration (FDA) approval of CASGEVY™ (exagamglogene autotemcel), a CRISPR/Cas9 gene-edited cell therapy, for the treatment of transfusion-dependent beta-thalassemia (TDT) in patients 12 years and older.
“On the heels of the historic FDA approval of CASGEVY for sickle cell disease, it is exciting to now secure approval for TDT well ahead of the PDUFA date," said Reshma Kewalramani, M.D., CEO and President of Vertex. “TDT patients deserve new, potentially curative treatment options, and we look forward to bringing CASGEVY to eligible patients who are waiting.”
VRTX’s trailing-12-month EBITDA margin of 45.41% is 771.2% higher than the industry average of 5.21%. Likewise, the stock’s trailing-12-month net income margin and levered FCF margin of 36.68% and 40.60% favorably compared to the industry averages of negative 5.94% and negative 0.11%, respectively.
For the third quarter that ended December 31, 2023, VRTX’s net product revenues increased 9.3% year-over-year to $2.52 billion. Its non-GAAP net income and non-GAAP net income per common share came in at $1.10 billion and $4.20, up 12.1% and 11.7% from the previous year’s quarter, respectively.
In addition, the company’s cash, cash equivalents and marketable securities stood at $11.22 billion as of December 31, 2023, compared to $10.78 billion as of December 31, 2022. Also, its total assets were $22.73 billion versus $18.15 billion as of December 31, 2022.
Street expects VRTX’s revenue and EPS for the first quarter (ending March 2024) to grow 8.9% and 33.3% year-over-year to $2.59 billion and $4.07, respectively. Moreover, the company has topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of VRTX have surged 22.8% over the past six months and 44.2% over the past year to close the last trading session at $423.06.
VRTX’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality. It also has a B grade for Value. VRTX is ranked #10 of 350 stocks in the Biotech industry.
Click here for VRTX’s additional ratings for Growth, Momentum, Sentiment, and Stability.
McKesson Corporation (MCK)
MCK is a leader in diversified global healthcare services. The company operates through four segments: U.S. Pharmaceutical; Prescription Technology Solutions (RxTS); Medical-Surgical Solutions; and International. It sells branded, generic, specialty, biosimilar, and over-the-counter pharmaceuticals, along with several other healthcare-related products.
On January 31, 2024, MCK’s Board of Directors declared a regular dividend of 62 cents ($0.62) per share of common stock. The dividend will be payable on April 1, 2024, to stockholders of record on March 1, 2024.
McKesson pays a $2.48 per share dividend annually, which translates to a 0.48% yield on the current price level. Its four-year average dividend yield is 0.75%. Its dividend payouts have grown at an 11.8% CAGR over the past three years. The company has raised its dividends for 16 consecutive years.
In August 2023, MCK and Genpact Limited (G), a global professional services company that focuses on delivery outcomes to transform business, extended their partnership to bring continued efficiency and automation capabilities to McKesson’s finance operations, utilizing automation and AI solutions.
This extension builds on a 13-year association and will focus on advancing the operating model, scaling operating capabilities with digital initiatives, and changing customer-centric models. This partnership will further accelerate MCK’s strategic growth initiative, contributing to cost reduction of finance operations and better positioning it to meet the needs of the healthcare industry.
MCK’s trailing-12-month EBIT margin of 1.50% compared to the industry average of negative 0.12%. Moreover, the stock’s trailing-12-month ROTC and ROTA of 45.69% and 5.28% compared to the respective industry averages of negative 22.24% and 31.43%.
In the fiscal 2024 third quarter that ended December 31, 2023, MCK’s revenues increased 14.8% year-over-year to $80.90 billion. Its adjusted gross profit rose 2.7% from the year-ago value to $3.13 billion. The company’s adjusted earnings came in at 1.03 billion, or $7.74 per share, increases of 6.2% and 12.2% from the prior year’s period, respectively.
Furthermore, as of December 31, 2023, the company’s total assets amounted to $66.51 billion, compared to $62.32 billion as of March 31, 2023.
McKesson raised its full-year 2024 guidance. The company expects its adjusted earnings per share to be $27.25-$27.65, up from the previous guidance of $26.80 to $27.40, to reflect strong operating performance, with a growth rate of 5% to 7%.
Analysts expect MCK’s revenue for the fiscal year ending March 2024 to increase 12.6% year-over-year to $311.55 billion. The consensus EPS estimate of $27.48 for the current year indicates an improvement of 6% year-over-year. Also, the company has surpassed consensus revenue and EPS estimates in all four trailing quarters.
MCK’s stock has gained 15.6% over the past six months and 34.8% over the past year to close the last trading session at $494.23.
MCK’s sound fundamentals 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 a B grade for Sentiment, Stability, and Value. Within the Medical - Services industry, MCK is ranked #5 out of 70 stocks.
Beyond what we stated above, we also have MCK’s ratings for Growth, Quality, and Momentum. Get all MCK’s ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
VRTX shares were unchanged in premarket trading Friday. Year-to-date, VRTX has gained 3.97%, versus a 4.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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