The pharmaceutical industry is expanding rapidly due to the rise in sales of drugs and therapies. This growth is driven by the growing prevalence of chronic diseases and an increasing elderly population, coupled with increased healthcare spending.
Given the pharmaceutical industry’s growth prospects, long-term value investors could look to buy fundamentally strong pharma stocks Organon & Co. (OGN), Procaps Group S.A. (PROC), Johnson & Johnson (JNJ), and GSK plc (GSK), trading at a discount.
Pharmaceutical stocks have been investor favorites as consistent demand for medicines and treatments makes pharmaceutical companies more resilient to economic cycles. The rising prevalence of chronic diseases like diabetes, arthritis, and cancer is expected to drive the demand for quality drugs and therapies.
The global pharmaceutical market is projected to grow at a 6.1% CAGR, reaching $2.36 trillion by 2030. Escalating healthcare spending and government support for affordable drugs will drive industry growth. Moreover, the growing demand for personalized and targeted treatments has bolstered the need for precision drugs.
Meanwhile, the rising employment of digital technologies like artificial intelligence (AI), the Internet of Things, and big data analytics are boosting the optimization of manufacturing processes, enhancing quality control, and reducing downtimes. Investors’ interest in pharmaceutical stocks is evident from VanEck Pharmaceutical ETF’s (PPH) 16.8% returns over the past year.
Considering these factors, let’s examine the fundamentals of the Medical - Pharmaceuticals stock picks, beginning with the fourth choice.
Stock #4: Organon & Co. (OGN)
OGN develops and delivers health solutions through a portfolio of prescription therapies and medical devices within women's health in the U.S. and internationally.
On May 24, 2024, OGN and Henlius announced that the European Medicines Agency (EMA) validated their marketing authorization applications for HLX14, a biosimilar candidate for Prolia and Xgeva (denosumab). This follows a successful phase 3 clinical study comparing HLX14 to the EU-sourced reference denosumab in postmenopausal women with osteoporosis at high risk for fracture.
On April 15, 2024, OGN announced that Mark Cuban's Cost Plus Drugs had added their products, HADLIMA (adalimumab-bwwd) and NuvaRing, to its online pharmacy. This collaboration aims to expand patient access to these medications at significantly reduced prices.
In terms of forward EV/Sales, OGN is trading at 2.12x, 39.3% lower than the industry average of 3.49x. The stock’s forward non-GAAP P/E of 4.72x is 76% lower than the industry average of 19.66x. Likewise, its forward EV/EBITDA is trading at 6.59x, 48.6% lower than the industry average of 12.82x.
OGN’s revenues for the fiscal first quarter that ended March 31, 2024, increased 5.5% year-over-year to $1.62 billion. Its adjusted gross profit rose marginally from the year-ago quarter to $1.01 billion. Moreover, its adjusted net income stood at $315 million, up 14.1% over the prior year quarter. Also, its adjusted EPS grew 13% year-over-year to $1.22.
Analysts expect OGN’s revenue for the quarter ending June 30, 2024, to increase 1.2% year-over-year to $1.63 billion. Its EPS for the quarter ending September 30, 2024, is expected to rise 21.1% year-over-year to $1.05. The company surpassed the Street revenue and EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 84.8% to close the last trading session at $20.99.
OGN’s POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
OGN has an A grade for Value. Within the Medical - Pharmaceuticals industry, it is ranked #34 out of 158 stocks. Click here for the additional POWR Ratings of OGN (Growth, Momentum, Stability, Sentiment, and Quality).
Stock #3: Procaps Group S.A. (PROC)
Headquartered in Luxembourg, PROC develops, produces, and markets pharmaceutical solutions worldwide. It formulates, manufactures, and markets branded prescription drugs in several therapeutic areas like feminine care products, pain relief, skin care, digestive health, cardiology, and more.
In terms of forward EV/EBIT, PROC is trading at 7.56x, 53.2% lower than the industry average of 16.14x. The stock’s forward Price/Sales of 0.73x is 79.7% lower than the industry average of 3.62x. Similarly, its forward EV/Sales is trading at 1.37x, 60.6% lower than the industry average of 3.49x.
For the fiscal third quarter that ended September 30, 2023, PROC’s revenue and gross profit increased 7.3% and 1.3% year-over-year to $118.41 million and $68.40 million, respectively. Its adjusted EBITDA stood at $22 million. For the same quarter, its income for the period attributable to owners of the company and earnings per share stood at $8.19 million and $0.08, respectively.
Street expects PROC’s revenue for the quarter that ended December 31, 2023, to increase 9% year-over-year to $110.60 million. The company surpassed consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 0.4%, closing the last trading session at $2.76.
PROC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #27 in the same industry. Get PROC’s Growth, Momentum, and Stability ratings here.
Stock #2: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine and MedTech.
On May 16, 2024, JNJ announced that it entered into a definitive agreement to acquire Proteologix, Inc., a privately held biotechnology company. This acquisition will provide JNJ with other bispecific antibody programs with applications across various diseases, boosting its capabilities to create novel bispecific programs.
In terms of forward EV/EBITDA, JNJ is trading at 11.21x, 12.6% lower than the industry average of 12.82x. The stock’s forward EV/EBIT of 12.50x is 22.5% lower than the industry average of 16.14x. Its forward non-GAAP P/E is trading at 13.79x, 29.9% lower than the industry average of 19.66x.
JNJ’s sales to customers for the first quarter that ended March 31, 2024, stood at $21.38 billion, up 2.3% year-over-year. Its gross profit grew 4.7% over the prior-year quarter to $14.87 billion. In addition, its adjusted net earnings and adjusted EPS increased 3.8% and 12.4% from the year-ago quarter to $6.58 billion and $2.71, respectively.
For the quarter ending September 30, 2024, JNJ’s revenue and EPS are expected to increase 4% and 1.2% year-over-year to $22.20 billion and $2.69, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has declined 1.1% over the past month to close the last trading session at $146.97.
JNJ’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
JNJ has an A grade for Quality and a B for Value and Stability. It is ranked #8 in the Medical - Pharmaceuticals industry. Click here to see the additional POWR Ratings of JNJ for Growth, Momentum, and Sentiment.
Stock #1: GSK plc (GSK)
Headquartered in Brentford, the United Kingdom, GSK researches, develops, and manufactures vaccines and specialty and general medicines to prevent and treat disease internationally. It operates through two segments: Commercial Operations and Total R&D.
On February 15, 2024, GSK announced the completion of its acquisition of Aiolos Bio, enhancing its respiratory biologics portfolio with AIO-001, a potential long-acting treatment for asthma with low T2 inflammation, aiming to benefit a broader range of patients.
In terms of forward EV/Sales, GSK is trading at 2.70x, 22.6% lower than the industry average of 3.49x. The stock’s forward non-GAAP PEG of 1.47x is 22.2% lower than the industry average of 1.89x. Likewise, its forward Price/Sales is trading at 2.29x, 36.9% lower than the industry average of 3.62x.
For the fiscal first quarter that ended March 31, 2024, GSK’s turnover and core gross profit increased 5.9% and 8.3% year-over-year to £7.36 billion ($9.38 billion) and £5.63 billion ($7.17 billion), respectively.
The company’s core profit attributable to shareholders amounted to £1.75 billion ($2.23 billion), up 17.1% over the prior-year quarter. Furthermore, its core earnings per share grew 16.5% from the year-ago quarter to 43.10p.
Analysts expect GSK’s EPS for the quarter ending September 30, 2024, to increase 4.9% year-over-year to $1.28. Its revenue for the quarter ending June 30, 2024, is expected to increase 2.9% year-over-year to $9.57 billion. The company surpassed the consensus EPS estimates in three of the trailing four quarters. GSK’s stock has gained 30.9% over the past nine months to close the last trading session at $45.12.
GSK’s robust prospects are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
GSK has an A grade for Value and a B for Stability, Sentiment, and Quality. It is ranked #3 within the same industry. Beyond what we stated above, we have also rated GSK for Growth and Momentum. Get all the GSK ratings here.
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JNJ shares were trading at $146.97 per share on Monday morning, down $2.73 (-1.82%). Year-to-date, JNJ has declined -4.76%, versus a 11.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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