The pharmaceutical industry's long-term growth prospects are promising due to rising medical needs, technological advancements, an increasing global population, and chronic disease prevalence. Amid this backdrop, it could be wise to keep an eye on fundamentally strong pharma stocks Roche Holding AG (RHHBY), Novartis AG (NVS) and AbbVie Inc. (ABBV).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the pharma industry.
The United States pharmaceutical market is expected to reach $802.80 billion by 2028, growing at a 5.9% CAGR. Moreover, it is expected to generate $601.10 billion in revenue in 2023. Oncology drugs is the industry’s largest segment, with expected market volume of $101 billion in 2023.
Also, the United States is projected to spend $605-$635 billion on medication in 2025. In 2023, the US pharma market accounts for 43.7% of the global pharma industry.
The global pharma 4.0 market is expected to reach $63.17 billion by 2032, increasing at an 18% CAGR. The growth of the global pharma 4.0 market can be attributed to advancements in technology and the increasing demand for personalized medicine.
Moreover, investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 8.8% 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, starting with the third stock.
Stock #3: Roche Holding AG (RHHBY)
Headquartered in Basel, Switzerland, RHHBY engages in the prescription pharmaceuticals and diagnostics businesses in Switzerland, Germany, and internationally. The company offers pharmaceutical products and in vitro diagnostics solutions for indications.
RHHBY’s forward non-GAAP P/E of 13.34x is 30% lower than the industry average of 19.06x. Its forward EV/EBIT of 11.05x is 37.1% lower than the industry average of 17.55x.
RHHBY’s trailing-12-month EBIT margin of 31.09% is significantly higher than the 0.81% industry average. Its trailing-12-month levered FCF margin of 17.45% is significantly higher than the 0.29% industry average.
RHHBY’s pharmaceuticals division sales for the nine-month ended, 2023 came in at CHF 33.62 billion ($37.29 billion), increased marginally year-over-year. Its diagnostics division sales came in at CHF 10.43 billion ($11.57 billion). Moreover, its group sales came in at CHF 44.05 billion ($48.85 billion).
Analysts expect RHHBY’s revenue to increase 4.2% year-over-year to $71.80 billion for the year ending December 2024. Its EPS is expected to grow 6.5% year-over-year to $2.83 for the same year. Shares of RHHBY has gained 6.2% over the past month to close the last trading session at $35.47.
RHHBY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RHHBY also has a B grade for Stability, Value and Quality. It is ranked #9 out of 157 stocks in the Medical – Pharmaceuticals industry. Click here for the additional POWR Ratings for Momentum, Sentiment and Growth for RHHBY.
Stock #2: Novartis AG (NVS)
Based in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products. Its Innovative Medicines arm delivers prescription medicines for patients and physicians, while the Sandoz segment focuses on producing and marketing finished dosage forms of small-molecule pharmaceuticals for third-party distribution.
NVS’ forward non-GAAP P/E of 14.75x is 22.6% lower than the industry average of 19.06x. Its forward non-GAAP PEG of 1.91x is 9.2% lower than the industry average of 2.10x.
NVS’ trailing-12-month EBIT margin of 29.83% is significantly higher than the 0.81% industry average. Its trailing-12-month levered FCF margin of 41.3% is significantly higher than the 0.29% industry average.
During the fiscal third quarter that ended September 30, NVS’ net sales increased 12.3% year-over-year to $11.78 billion. The company’s net income and EPS grew 13.8% and 19.7% from the prior year’s quarter to $1.51 billion and $0.73, respectively. Its free cash flow increased 24.4% year-over-year to $5.04 billion.
The consensus revenue came in at $47.74 billion for the fiscal year ending December 2024 represents a 3.2% increase year-over-year. Its EPS is expected to grow 8.8% year-over-year to $7.25 for the same year. It surpassed EPS estimates in all four trailing quarters. Shares of NVS has gained 19.6% over the past nine months to close the last trading session at $98.29.
NVS’ promising outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
NVS has an A grade for Quality and a B for Value and Stability. It ranks #4 in the same industry. Click here to access additional NVS ratings (Growth, Sentiment and Momentum).
Stock #1: AbbVie Inc. (ABBV)
ABBV is a research-based biopharmaceutical company that develops, manufactures, and sells pharmaceuticals worldwide. The company’s product offerings include HUMIRA, SKYRIZI, and RINVOQ.
ABBV’s forward EV/EBITDA multiple of 12.29 is 7.6% lower than the industry average of 13.30. Its forward EV/EBIT multiple of 12.71% is 27.6% lower than the industry average of 17.55.
ABBV’s trailing-12-month levered FCF margin of 43.65% is significantly higher than the industry average of 0.29%, while its trailing-12-month EBIT margin of 34.85% is significantly higher than the industry average of 0.81%.
ABBV’s net revenues came in at $13.93 billion for the fiscal third quarter that ended September 30, 2023. Its operating earnings increased reached $2.28 billion. Also, its non-GAAP net earnings and EPS amounted to $5.25 billion and $2.95.
Also, its total current assets came in at $33.22 billion for the period that ended September 30, 2023, compared to $28.46 billion for the period that ended December 31, 2022. Its Long-term debt and finance lease obligations came in at $55.63 billion, compared to $59.14 billion for the same period.
The company’s revenue and EPS are expected to reach $53.95 billion and $11.20 for the fiscal year 2023. Shares of ABBV have gained 10.8% over the past six months to close the last trading session at $153.60.
ABBV has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Value, Sentiment and Stability. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated ABBV for Growth and Momentum. Get all ABBV ratings here.
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RHHBY shares were trading at $35.45 per share on Wednesday morning, down $0.02 (-0.06%). Year-to-date, RHHBY has declined -7.39%, versus a 26.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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