With consistent demand for its products all year round, the pharma industry is an appealing investment choice for its resilience and consistent performance potential. So, quality pharma stocks Dr. Reddy’s Laboratories Limited (RDY), Ipsen S.A. (IPSEY), and Johnson & Johnson (JNJ) could present compelling investment opportunities for Stability and Value.
The pharmaceutical industry is set for rapid growth in the upcoming years due to rising global medical needs and technological advancements. Factors like the rising frequency of chronic and rare diseases, the rapidly aging population globally, and emerging markets in developing countries will drive the industry’s expansion.
Additionally, Pharma 4.0 could revolutionize the industry by harnessing new digital technologies and advanced analytics to enhance manufacturing processes, quality, and patient care. Global pharmaceutical revenues are expected to grow at a CAGR of 6.2% and reach a staggering $1.47 trillion by 2028.
Moreover, investors’ interest in pharmaceutical stocks has been notable, as evidenced by the performance of the iShares U.S. Pharmaceutical ETF (IHE), which has delivered a strong return of 15.6% over the past year.
Given the surging health concerns worldwide, global spending on medicine grew 35% over the past five years, as reported by IQVIA Institute. It is further projected to grow 38% by 2028.
Besides, the global precision medicine industry is growing due to advances in genomics, technology, and economic benefits. These factors drive personalized treatment approaches tailored to individual patients for improved outcomes. Projections suggest that the global precision medicine market will reach $118.08 billion by 2028, growing at a CAGR of 9.9%.
Furthermore, increasing internet penetration, digitalization of healthcare, and tech-savvy consumers are driving growth in the global e-pharmacy market. Rising online purchases due to convenience and the adoption of digital technologies in healthcare are further propelling market expansion.
As a result, the global e-pharmacy market is expected to expand at a CAGR of 20.4% by 2030.
Given the industry tailwinds, it’s time to examine the fundamentals of the top three stocks in the Medical – Pharmaceuticals industry, starting with the third in line.
Stock #3: Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is a global pharmaceutical company that manufactures and markets generic and branded drugs and active pharmaceutical ingredients and provides research services. It develops therapies in oncology and inflammation and offers digital healthcare services.
On January 3, 2024, RDY acquired MenoLabs® business, a leading women’s health and dietary supplement branded portfolio, from Amyris, Inc. The deal includes seven products for menopause symptoms and the MenoLife® app, bolstering the company’s presence in women’s health and wellness.
RDY’s forward P/E multiple of 20.21 is 28.9% lower than the industry average of 28.43. Likewise, the stock’s forward EV/Sales of 3.65x is 4.3% lower than the 3.82x industry average.
RDY distributes an annual dividend of $0.48, which translates to a yield of 0.63% on the prevailing price level. The company’s dividend payouts have increased at a CAGR of 13.1% over the past three years.
During the third quarter, which ended December 31, 2023, RDY’s revenues rose 6.5% year-over-year to $867 million. The company’s profit for the period grew 10.7% from the prior-year quarter to $166 million. Moreover, its EPS and EBITDA increased 10% and 7.6% from the previous year’s quarter to $0.99 and $254 million, respectively.
Analysts expect RDY’s revenue and EPS to grow 7.5% and 11.2% year-over-year to $828.65 million and $0.81, respectively, for the fiscal fourth quarter ending March 2024. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
RDY’s shares have gained 12.6% over the past three months and 47% over the past year to close the last trading session at $76.78. The stock has a 24-month beta of 0.24.
RDY’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 POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RDY has an A grade for Stability and a B for Value. Within the 164-stock Medical – Pharmaceuticals industry, it is ranked #21.
Click here to see RDY’s additional POWR Ratings for Growth, Momentum, and Quality.
Stock #2: Ipsen S.A. (IPSEY)
Based in Boulogne-Billancourt, France, IPSEY operates as a global biopharmaceutical company. It provides drugs in the areas of oncology, neuroscience, and rare diseases. The company offers Somatuline, Dysport, Decapeptyl, Cabometyx, Onivyde, and Tazverik. It also provides NutropinAq for growth failure in children.
IPSEY’s forward EV/Sales of 2.42x is 36.6% lower than the industry average of 3.82x. Also, the stock’s forward EV/EBIT multiple of 8.27 is 48.8% lower than the 16.15 industry average. And its forward Price/Sales of 2.44x is 38.8% lower than the industry average of 3.99x.
The company’s annual dividend is $0.32 translates to a yield of 1.14% on the prevailing price level. Over the past three years, the company’s dividend payouts have grown at a CAGR of 8%.
For the fiscal year that ended December 31, 2023, IPSEY’s total sales rose 3.4% year-over-year to €3.13 billion ($3.39 billion). Its core operating income amounted to €1 billion ($1.08 billion), and core consolidated net profit stood at €765.50 million ($828.75 million). In addition, it generated a core EPS of €9.15 and its free cash flow came in at €710.90 million ($769.64 million).
Street expects IPSEY’s revenue for the fiscal year (ending December 2024) to increase 10.5% year-over-year to $3.72 billion. Similarly, for the fiscal year 2025, the company’s revenue is expected to grow 6.7% from the previous year to $3.97 billion.
IPSEY’s stock has gained marginally intraday to close the last trading session at $27.86. It has a 24-month beta of 0.57.
IPSEY’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
IPSEY has an A grade for Value and a B for Stability and Quality. Within the same industry, IPSEY is ranked #12.
In addition to the POWR Ratings stated above, one can access IPSEY’s ratings for Growth, Sentiment, and Momentum here.
Stock #1: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates in three segments: Consumer Health, Pharmaceutical, and MedTech, and offers products under the brands AVEENO, CLEAN & CLEAR, DR. CI:LABO, NEUTROGENA, OGX, LISTERINE, STAYFREE, BENADRYL, among others.
On January 8, 2024, JNJ announced that it had reached a definitive agreement to acquire Ambrx Biopharma, Inc. (AMAM), a clinical-stage biopharmaceutical company with a proprietary synthetic biology technology platform for designing and developing next-generation antibody-drug conjugates (ADCs).
This strategic acquisition will help JNJ boost its position in the biopharmaceutical business and broaden its portfolio of novel medications.
JNJ’s forward P/E of 18.14x is 33.7% lower than the industry average of 27.38x. Additionally, the stock’s forward EV/EBIT multiple of 13.62 is 15.6% lower than the industry average of 16.15.
JNJ pays $4.76 annually as dividends, which yields 2.96% on the current share price, higher than the four-year average dividend yield of 2.65%. The company has raised its dividends for 61 consecutive years.
In the fourth quarter ended December 31, 2023, JNJ’s sales increased 7.3% year-over-year to $21.40 billion. Its gross profit rose 5.4% year-over-year to $14.60 billion. The company’s adjusted net earnings grew 2.4% over the prior-year quarter to $5.56 billion. In addition, its adjusted EPS came in at $2.29, representing an increase of 11.7% year-over-year.
Analysts expect JNJ’s EPS and revenue to rise 7.6% and 3.7% year-over-year to $10.67 and $88.29 billion for the fiscal year 2024, respectively. The company has exceeded the consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.
The stock has soared 6.1% over the past three months to close the last trading session at $161.38. Its 24-month beta is 0.32.
JNJ’s POWR Ratings reflect its bright prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
JNJ is ranked #10 in the same industry. The stock has an A grade for Stability, Value, and Quality.
To see additional JNJ’s ratings for Growth, Sentiment, and Momentum, click 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.
JNJ shares fell $0.29 (-0.18%) in premarket trading Friday. Year-to-date, JNJ has gained 3.74%, versus a 6.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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