More Western sanctions on Russia, the increasing probability of aggressive interest rate increases by the Federal Reserve later this year to combat high inflation, and deepening supply chain constraints have been fostering high market volatility lately. Therefore, investors seeking ways to generate stable returns could bet on mega-cap healthcare stocks because they are known for their defensive qualities.
The growing demand for viable drugs from an aging population, efficient equipment for diagnosis, and vaccines and therapies for treating chronic and emerging diseases should keep driving the healthcare industry’s growth. Indeed, investors’ interest in this space is evident in the iShares Global Healthcare ETF’s (IXJ) 7% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 3.3% returns. The global consumer healthcare market is expected to grow at an 8.6% CAGR to $6.65 trillion by 2028.
Wide market reach and a diversified product portfolio make fundamentally sound mega-cap healthcare stocks Novartis AG (NVS), Danaher Corporation (DHR), Eli Lilly and Company (LLY), Johnson & Johnson (JNJ), and Abbott Laboratories (ABT) ideal bets now. We believe their solid growth attributes and higher profit margins position these stocks well to withstand the current market fluctuations and deliver stable returns.
Click here to checkout our Healthcare Sector Report for 2022
Novartis AG (NVS)
With a $203.64 billion market capitalization, NVS is a Basel, Switzerland-based pharmaceutical company that researches, develops, manufactures, and markets branded and generic prescription drugs, active pharmaceutical ingredients, biosimilars, and ophthalmic products worldwide. The company uses science and digital technologies for treatments in the disease areas of immunology, dermatology, cancer, ophthalmology, neuroscience, respiratory, cardiovascular, renal, and metabolism. It has a 0.55 beta.
On April 6, 2022, the European Medicines Agency (EMA) validated Marketing Authorization Applications (MAAs) for NVS’ tislelizumab, a humanized IgG4 anti-PD-1 monoclonal antibody being developed both as a monotherapy and in combination with other therapies, in multiple non-small cell lung cancer and esophageal squamous cell carcinoma indications among adults. This is an important step toward expanding treatment options for cancer patients in Europe and builds on its U.S. FDA filing acceptance for tislelizumab in esophageal cancer.
For its fiscal 2021 fourth quarter, ended Dec.31, 2021, NVS’ net sales increased 3.6% year-over-year to $13.23 billion. The company’s gross profit came in at $9.55 billion, representing an 8.3% year-over-year improvement. Its net income increased 676.9% year-over-year to $16.31 billion. NVS’ EPS came in at $7.24, up 687% from the prior-year period. As of December 31, 2021, the company had $12.41 billion in cash and cash equivalents.
Analysts expect NVS’ EPS to improve 1.1% year-over-year to $6.36 for its fiscal year 2022, ending Dec. 31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $53.55 billion consensus revenue estimate for the same fiscal year indicates a 3.7% year-over-year improvement. The company’s EPS is expected to grow at a 5.2% rate per annum over the next five years.
NVS’ EBITDA, net income, and levered free cash flow have grown at CAGRs of 6.7%, 24%, and 7.5%, respectively, over the past three years.
Over the past month, the stock has gained 7% in price and closed yesterday’s trading session at $90.65. NVS’ trailing-12-month gross profit margin, levered free cash flow margin, and ROE are 70.8%, 23.9%, and 38.6%, respectively.
NVS’ POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Stability and a B grade for Growth, Value, and Quality. Click here to see the additional ratings for NVS’ Momentum and Sentiment.
NVS is ranked #1 of 174 stocks in the Medical - Pharmaceuticals industry.
Danaher Corporation (DHR)
With a market cap of $213.76 billion, Washington, D.C.-based DHR designs, manufactures, and markets professional, medical, industrial, and commercial products and services in test and measurement, environmental, life sciences, dental, and industrial technologies. The company operates through three segments: Life Sciences; Diagnostics; and Environmental & Applied Solutions. It has a 0.78 beta.
On August 30, 2021, DHR acquired Aldevron, a manufacturer of high-quality plasmid DNA, mRNA, and proteins, that serves biotechnology and pharmaceutical customers across research, clinical and commercial applications, for $9.60 billion in cash. Aldevron will operate as a standalone company and brand within DHR’s Life Sciences segment. The acquisition should expand DHR’s capabilities into the important field of genomic medicine and bring more life-saving therapies and vaccines to market faster.
DHR’s sales for its fiscal 2021 fourth quarter, ended Dec. 31, 2021, increased 20.5% year-over-year to $8.15 billion. The company’s gross profit came in at $4.94 billion, representing a 25% year-over-year improvement. Its operating profit came in at $2.15 billion, indicating a 34.5% rise from the prior-year period. And DHR’s net income was $1.75 billion for the quarter, representing a 45.6% rise from the year-ago period. Its adjusted EPS was $2.69, up 29.3% from the prior-year period. As of December 31, 2021, the company had $2.59 billion in cash and equivalents.
The $10.44 consensus EPS estimate for its fiscal year 2022, ending Dec. 31, 2022, represents a 3.9% year-over-year improvement. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect DHR’s revenue to improve 5.2% year-over-year to $30.98 billion for the same fiscal year. The company’s EPS is expected to grow at a 16.9% rate per annum over the next five years.
Over the past three years, DHR’s EBITDA, net income, and levered free cash flow have grown at CAGRs of 34.3%, 34.4%, and 26.8%, respectively.
DHR stock has gained 6.2% in price over the past month and ended yesterday’s trading session at $289.33. The stock’s trailing-12-month gross profit margin, levered free cash flow margin, and ROE are 61.3%, 18.6%, and 14.9%, respectively.
DHR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Stability, and Sentiment. Click here to see the additional ratings for DHR’s Value, Quality, and Momentum.
DHR is ranked #40 of 161 stocks in the Medical - Devices & Equipment industry.
Eli Lilly and Company (LLY)
With a market capitalization of $295.61 billion, LLY develops and markets pharmaceutical products for humans and animals worldwide. The Indianapolis, Ind.-based company’s products are focused on diabetes, oncology, immunology, neuroscience, and other therapies. It has a 0.43 beta.
On March 26, 2022, LLY and biopharmaceutical company Incyte Corporation (INCY) announced at the American Academy of Dermatology (AAD) Annual Meeting that patients with severe alopecia areata (AA) who took OLUMIANT achieved significant scalp, eyelash, and eyebrow hair regrowth. In February 2022, the U.S. Food and Drug Administration (FDA) granted priority review for OLUMIANT in severe AA as a potential first-in-disease medicine. These developments should help LLY gain expanding market reach in the coming months. The company expects regulatory decisions in the U.S., European Union, and Japan in 2022.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, LLY’s revenue increased 7.5% year-over-year to $8 billion. The company’s non-GAAP net income increased 7.6% year-over-year to $2.27 billion. Its non-GAAP EPS came in at $2.49, up 7.8% from the year-ago period. The company had $3.82 billion in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect the company’s EPS to grow 7.6% from the prior-year period to $7.95 for its fiscal year 2022, ending Dec. 31, 2022. The $26.07 billion consensus revenue estimate for the same fiscal year indicates a 1.7% year-over-year improvement. LLY’s EPS is expected to grow at a 6.4% rate per annum over the next five years.
Over the past three years, LLY’s EBITDA, net income, and levered free cash flow have grown at CAGRs of 8.4%, 20%, and 112.1%, respectively.
The stock has gained 16.4% over the past month and closed yesterday’s trading session at $305.84. LLY’s trailing-12-month gross profit margin, levered free cash flow margin, and ROE are 75.4%, 18.2%, and 74.5%, respectively.
LLY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Stability, Sentiment, and Quality. Click here to see the additional ratings for LLY’s Value and Momentum.
LLY is ranked #9 in the Medical - Pharmaceuticals industry.
Johnson & Johnson (JNJ)
With a $479.87 billion market capitalization, JNJ in New Brunswick, N.J., develops manufactures, sells health care products, and provides related services. The company serves primarily the consumer, pharmaceutical, and medical devices and diagnostics markets and distributes its products through retail outlets and distributors, wholesalers, hospitals, and health care professionals for prescription use. It has a 0.72 beta.
On April 4, 2022, the Government of Canada’s Health Canada department issued a Notice of Compliance with Conditions (NOC/c) approving JNJ’s Janssen Pharmaceutical Companies’ RYBREVANT, a fully human, bispecific antibody, for the treatment of adult patients with locally advanced or metastatic non-small-cell lung cancer (NSCLC) with activating epidermal growth factor receptor (EGFR) Exon 20 insertion mutations whose disease has progressed on or after platinum-based chemotherapy. As lung cancer accounts for almost 25% of all cancer deaths in Canada, this approval should help Janssen gain more market reach in Canada.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, JNJ’s sales came in at $24.80 billion, representing a 10.4% year-over-year improvement. The company’s gross profit was $16.85 billion, up 14.9% from the prior-year period. Its pre-tax income came in at $4.74 billion for the quarter, indicating a 193.6% year-over-year improvement. While its adjusted net earnings increased 14.4% year-over-year to $5.68 billion, its adjusted EPS rose 14.5% to $2.13. The company had $36.22 billion in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect JNJ’s EPS to improve 7.3% year-over-year to $10.52 for its fiscal year 2022, ending Dec.31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $99.54 billion consensus revenue estimate for the same fiscal year represents a 6.2% rise from the prior-year period. The company’s EPS is expected to grow at a 6.1% rate per annum over the next five years.
Over the past three years, JNJ’s EBITDA, net income, and levered free cash flow have grown at CAGRs of 5.1%, 10.9%, and 3%, respectively.
JNJ stock has gained 7.5% in price over the past month and ended yesterday’s trading session at $182.23. The stock’s trailing-12-month gross profit margin, levered free cash flow margin, and ROE are 68.3%, 20.1%, and 30.4%, respectively.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B grade for Value and Quality. Click here to see the additional ratings for JNJ (Momentum, Sentiment, and Growth).
JNJ is ranked #3 in the Medical - Pharmaceuticals industry.
Abbott Laboratories (ABT)
With a $216.20 billion market capitalization, ABT discovers, develops, and sells healthcare products focused on cardiovascular, diabetes care, diagnostics, neuromodulation, nutrition, and medicine. The Abbott Park, Ill,-based company’s products are sold directly to wholesalers, distributors, government agencies, health care facilities, pharmacies, and independent retailers. It has a 0.73 beta.
On April 4, 2022, the U.S. FDA approved ABT’s Aveir single-chamber (VR) leadless pacemaker for the treatment of patients in the U.S. with slow heart rhythms. Unlike traditional pacemakers, the Aveir leadless pacemaker has a unique mapping capability to assess correct positioning and is implanted directly inside the heart's right ventricle via a minimally invasive procedure. This marks a significant advancement in patient care and brings new, never-before-seen features to patients and physicians.
For its fiscal year 2021 fourth quarter ended Dec. 31, 2021, ABT’s net sales increased 7.2% year-over-year to $11.47 billion. The company’s non-GAAP gross profit came in at $6.62 billion, representing a 5.8% rise from the prior-year period. It had $9.80 billion in cash and cash equivalents as of Dec. 31, 2021.
ABT surpassed the Street’s EPS estimates in each of the trailing four quarters. The company’s EPS is expected to grow at a 12.1% rate per annum over the next five years.
ABT’s EBITDA, net income, and levered free cash flow have grown at CAGRs of 21.5%, 44%, and 16.7%, respectively, over the past three years.
The stock has declined 1.2% in price over the past month and ended yesterday’s trading session at $119.94. The stock’s trailing-12-month gross profit margin, levered free cash flow margin, and ROE are 58.1%, 17.8%, and 20.5%, respectively.
ABT’s POWR Ratings reflect its solid prospects. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Stability, Sentiment, and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for ABT’s Value and Momentum here.
ABT is ranked #6 in the Medical - Devices & Equipment industry.
Click here to checkout our Healthcare Sector Report for 2022
NVS shares were trading at $91.34 per share on Thursday afternoon, up $0.69 (+0.76%). Year-to-date, NVS has gained 7.20%, versus a -5.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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