The pharmaceutical industry is popular amongst investors due to 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 investments in the development of treatments for rare diseases.
Amid this backdrop, it could be wise to buy fundamentally strong pharma stocks Amphastar Pharmaceuticals, Inc. (AMPH), Ironwood Pharmaceuticals, Inc. (IRWD), and Taro Pharmaceutical Industries Ltd. (TARO).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the pharmaceutical industry is well-positioned for growth.
The pharmaceutical industry came into limelight during the pandemic. The sector developed vaccines and drugs to help the world overcome the massive healthcare challenge.
The pharmaceutical industry is set for solid long-term growth thanks to the rise in chronic diseases stemming from unsustainable lifestyle choices, a rapidly aging population, and the increase in life-threatening illnesses. Moreover, the industry is investing heavily in research and development (R&D) and utilizing cutting-edge technologies to develop life-saving drugs.
Apart from the factors mentioned above, the pharmaceutical industry is considered safe from an investment point of view as pharma companies can maintain their profit margins even during times of economic crisis.
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 evident from the VanEck Pharmaceutical ETF’s (PPH) 11.9% returns over the past nine months.
Let’s take a closer look at their fundamentals.
Amphastar Pharmaceuticals, Inc. (AMPH)
AMPH manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products in the United States, China, and France. The company operates through two segments, Finished Pharmaceutical Products and Active Pharmaceutical Ingredients (API).
On June 30, 2023, AMPH completed the acquisition of BAQSIMI from Eli Lilly, bolstering its intranasal product portfolio and expanding its international presence in 26 countries.
Jack Zhang, Ph.D., AMPH’s president and CEO said, "The acquisition of BAQSIMI will integrate our core strategic vision of strengthening our proprietary products profile in addition to enhancing our diabetes portfolio offering. We are optimistic about BAQSIMI's growth potential as it is the first and only commercial intra-nasal glucagon demonstrated to treat low blood sugar emergencies."
In terms of the trailing-12-month EBITDA margin, AMPH’s 27.97% is 611.5% higher than the 3.93% industry average. Its 5.28% trailing-12-month Capex/Sales is 13.6% higher than the 4.64% industry average. Likewise, the stock’s 0.70x trailing-12-month asset turnover ratio is 96.9% higher than the 0.35x industry average.
AMPH’s total revenue for the first quarter ended March 31, 2023, increased 16.3% year-over-year to $140.02 million. Its gross profit rose 32.3% year-over-year to $73.84 million. The company’s non-GAAP net income and EPS increased 30.7% and 31.9% year-over-year to $32.14 million and $0.62, respectively.
Street expects AMPH’s EPS and revenues for the quarter ended June 30, 2023, to increase 43.6% and 10.9% year-over-year to $0.56 and $136.97 million, respectively. The stock has gained 104.1% year-to-date to close the last trading session at $57.18.
AMPH’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #18 out of 165 stocks in the Medical - Pharmaceuticals industry. It has a B grade for Growth and Quality. Click here to see AMPH’s Value, Momentum, Sentiment, and Stability rating.
Ironwood Pharmaceuticals, Inc. (IRWD)
IRWD focuses on the development and commercialization of gastrointestinal (GI) products. It markets linaclotide, a guanylate cyclase type-C (GC-C) agonist for the treatment of adults suffering from irritable bowel syndrome with constipation or chronic idiopathic constipation under the LINZESS name in the United States, Mexico, Japan, and China, as well as under the CONSTELLA name in the Canada and European countries.
On June 29, 2023, IRWD and VectivBio announced the successful completion of the tender offer to purchase VectivBio's outstanding shares. The chief executive officer of IRWD, Tom McCourt said, “The acquisition of VectivBio, including its compelling asset, apraglutide, is an ideal strategic fit with Ironwood.”
“We are confident that with our GI expertise, commercial capabilities, and robust balance sheet, we are well positioned to continue developing apraglutide, with the goal of getting it into the hands of the patients who need it the most and potentially generate significant and sustainable value for shareholders,” he added.
In terms of the trailing-12-month EBITDA margin, IRWD’s 60.88% is significantly higher than the 3.93% industry average. Its 88.90% trailing-12-month gross profit margin is 59.8% higher than the 55.64% industry average. Likewise, its 0.37x asset turnover ratio is 5.4% higher than the 0.35x industry average.
For the fiscal first quarter that ended March 31, 2023, IRWD’s total revenues increased 6.7% year-over-year to $104.06 million. Its non-GAAP net income rose 20% year-over-year to $45.70 million. The company’s adjusted EBITDA rose 3.7% year-over-year to $60.38 million. Also, its adjusted EPS came in at $0.25, representing an increase of 19% year-over-year.
Analysts expect IRWD’s EPS and revenue for the quarter ended June 30, 2023, are expected to increase 17.5% and 6.7% year-over-year to $0.25 and $103.72 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has declined 0.8% to close the last trading session at $10.07.
IRWD’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Quality. It is ranked #17 in the same industry. To see IRWD’s ratings for Growth, Momentum, Stability, and Sentiment, click here.
Taro Pharmaceutical Industries Ltd. (TARO)
Headquartered in Haifa, Israel, TARO develops, manufactures, and markets prescription and over-the-counter pharmaceutical products. The company also develops and manufactures active pharmaceutical ingredients primarily for use in its finished dosage-form products. It offers products for various therapeutic categories comprising allergy, analgesic, antibacterial, antibiotic, etc.
In terms of the trailing-12-month EBITDA margin, TARO’s 8.70% is 121.3% higher than the 3.93% industry average. Its trailing-12-month net income margin of 4.44% compares to the negative 6.66% industry average. Likewise, its trailing-12-month levered FCF margin of 1.61% compares to the negative 2.30% industry average.
TARO’s net sales for the fourth quarter ended March 31, 2023, increased 2.3% year-over-year to $146.59 million. Its operating income came in at $9.27 million. The company’s gross profit came in at $75.71 million. In addition, its net income attributable to TARO and EPS came in at $6.91 million and $0.18, respectively.
TARO’s EPS for the quarter ending December 31, 2023, is expected to increase 68.4% and year-over-year to $0.32. Its revenue for the quarter ending September 30, 2023, is expected to increase 17.7% year-over-year to $153.64 million. Over the past three months, the stock has gained 50.8% to close the last trading session at $36.69.
TARO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability and Sentiment. Within the Medical - Pharmaceuticals industry, it is ranked #16. Click here to see TARO’s ratings for Growth, Momentum, and Quality.
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AMPH shares were trading at $57.02 per share on Friday morning, down $0.16 (-0.28%). Year-to-date, AMPH has gained 103.50%, versus a 15.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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