Regardless of the economy, the healthcare industry has proven to be resilient because of the inelastic demand for its products and services, thereby making it a great long-term choice. Thus, fundamentally sound medical stocks Johnson & Johnson (JNJ), AstraZeneca PLC (AZN), and Astellas Pharma Inc. (ALPMY) could be solid picks for your portfolio.
Despite still-elevated inflation and strong headwinds of a recession, the healthcare sector has remained stable, as evident from the Vanguard Health Care Index Fund ETF Shares (VHT) 2.1% returns over the past three months.
Among the OECD members, the United States had the highest percentage of Gross Domestic Product (GDP) spent on healthcare in 2021 (about 18%). Moreover, for 2030, the total health expenditure of the United States is forecasted to reach some $6.7 trillion.
Companies in the healthcare space are working on drugs and therapeutics for some of the most pernicious conditions and are on the verge of significant breakthroughs. Positive results from a clinical trial and improving patient outcomes are bolstering the need for ongoing medical care and treatment.
As a result, the pharma market has developed significantly over the past two decades. In 2022, global pharma revenues totaled $1.48 trillion.
With advancements in technology, deployment of telemedicine approaches, and changing healthcare needs, the global medical supplies market, in terms of revenue, is poised to reach $163.5 billion by 2027, growing at a CAGR of 3.4%.
Moreover, with increased market uncertainty, investors are flocking toward defensive investments to safeguard their portfolios. Therefore, fundamentally strong medical stocks JNJ, AZN, and ALPMY could be ideal portfolio additions now.
Johnson & Johnson (JNJ)
JNJ is engaged in the research and development, manufacturing, and sale of healthcare products, primarily focused on human health and well-being. It offers its products to the general public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.
On June 6, the company paid a quarterly dividend of $1.19 per share on its common stock, up 5.3% from the last quarter. JNJ’s four-year average dividend yield is 2.62%, and its current dividend of $4.76 translates to a 3% yield on prevailing prices.
Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. Also, it has a record of 60 years of consecutive dividend growth.
On June 5, the company announced that interim analysis of Cohort 1 of the Phase 3 THOR study data evaluating treatment with BALVERSA® (erdafitinib) showed improved overall survival versus chemotherapy in patients with metastatic or unresectable urothelial carcinoma and selected fibroblast growth factor receptor gene alterations after prior AntiPD-(L)1 treatment.
In the same month, JNJ reported that Phase 3 CARTITUDE-4 study results for CARVYKTI® (ciltacabtagene autoleucel) reduced the risk of disease progression or death by 74% in earlier-line multiple myeloma treatment.
Such successive trial results should benefit the company significantly in the long run in terms of revenue and effective treatment options.
On May 2, JNJ’s Janssen Biotech, Inc. entered into a worldwide collaboration and license agreement with Cellular Biomedicine Group Inc. to develop, manufacture, and commercialize next-generation Chimeric Antigen Receptor (CAR) T-cell therapies for the treatment of B-cell malignancies.
This agreement strengthens the company’s leadership in oncology and hematology and accelerates commitment to delivering transformational cell therapies.
During the fiscal first quarter (ended March 2023), JNJ’s sales to customers increased 5.6% year-over-year to $24.75 billion. Its gross profit grew 3.3% from the same period in the prior year to $16.35 billion. The company’s adjusted net earnings amounted to $7.07 billion, while its adjusted EPS came in at $2.68, representing a marginal increase year-over-year.
Street expects JNJ’s revenue to increase 2.8% year-over-year to $24.68 billion for the fiscal second quarter (ending June 30, 2023). Its EPS for the current quarter is expected to increase marginally from the prior-year period to $2.62. It surpassed the EPS estimates in each of the trailing four quarters, which is excellent.
JNJ’s revenue and total assets grew at a 5.2% CAGR and an 8.1% CAGR over the past three years, respectively. Its EBIT has grown at a 6.6% CAGR over the same period.
The stock’s trailing-12-month gross profit margin of 66.98% is 20.1% higher than the 55.77% industry average. Likewise, its trailing-12-month EBITDA margin of 34.39% is significantly higher than the industry average of 2.18%.
Over the past three months, the stock has gained 2.9% to close the last trading session at $158.52.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Growth, Value, Sentiment, and Quality. The stock is ranked #5 of 168 stocks in the Medical - Pharmaceuticals industry. Click here to see JNJ’s rating for Momentum.
AstraZeneca PLC (AZN)
AZN is a science-led biopharmaceutical company focused on discovering, developing, and commercializing prescription medicines in oncology, rare diseases, and biopharmaceuticals, including cardiovascular, renal & metabolism, and respiratory & immunology. Its pipeline forms a robust portfolio of investigational therapies in various stages of clinical development.
On June 5, AZN and Daiichi Sankyo’s jointly developed and commercialized Enhertu, showed an objective response rate of 37.1% in patients across multiple HER2-expressing advanced solid tumors of the DESTINY-PanTumor02 Phase II trial.
Being the first therapy to show such encouraging and durable response rates, Funda Meric-Bernstam, principal investigator for the trial, believes that Enhertu has the potential to benefit specific patients with HER2-expressing advanced disease who have limited options and face a poor prognosis.
AZN’s four-year average dividend yield is 2.57%, and its current dividend of $1.97 translates to a 2.68% yield on the current price level. Its dividends have grown at marginal CAGRs over the past three and five years.
The stock’s trailing-12-month EBITDA margin of 33.96% is significantly higher than the industry average of 2.18%. Also, its trailing-12-month gross profit margin of 84.30% compares with the 55.77% industry average.
During the fiscal first quarter (ended March 31, 2023), AZN’s total revenue amounted to $10.88 billion, while its gross profit increased 13.9% year-over-year to $8.97 billion. Its operating profit improved 190.3% from the year-ago value to $2.54 billion.
The company’s EBITDA grew 85.2% from the same period the prior year to $4.05 billion, while its EPS came in at $1.16, representing a significant improvement year-over-year.
Analysts expect AZN’s EPS and revenue to increase 16.1% and 2.8% year-over-year to $1 and $11.07 billion for the fiscal second quarter (ending June 30, 2023). Moreover, it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
AZN’s revenue and EBITDA have grown at 20.2% and 37.2% CAGRs over the past three years, respectively, while its levered FCF has improved at a 34.3% CAGR over the same period.
The stock has gained 22.5% over the past nine months to close the last trading session at $73.31.
AZN’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Stability, and Quality. The stock is ranked #7 of 168 stocks in the same industry. To see the other ratings of AZN for Value and Momentum, click here.
Astellas Pharma Inc. (ALPMY)
Headquartered in Tokyo, Japan, ALPMY is primarily engaged in the manufacture, marketing, import, and export of pharmaceutical products. Its main products include XTANDI, BETANIS, MIRABETRIC, BETMIGA, and new products ZOSPATA, EVERENZO, and ENHOLTUMAB VEDOTIN, among others.
On June 8, ALPMY, along with Kate Therapeutics, announced an exclusive license agreement to develop and commercialize KT430, a preclinical next-generation investigational gene therapy to treat X-linked myotubular myopathy (XLMTM).
Adam Pearson, Chief Strategy Officer at ALPMY, stated, “The addition of this new potential gene therapy treatment for XLMTM along with our current AT132 program further enhances our commitment to this patient community and dedication to delivering transformative medicines.”
On May 1, the company, through its wholly-owned subsidiary Berry Merger Sub, Inc., entered into a definitive agreement to acquire Iveric bio, Inc. (ISEE) for a total equity value of approximately $5.9 billion. This acquisition advances the company’s efforts to deliver greater value to patients suffering from blinding retinal diseases.
ALPMY’s four-year average dividend yield is 2.55%, with three consecutive years of dividend growth.
The stock’s trailing-12-month EBITDA margin of 24.52% is significantly higher than the 2.18% industry average. ALPMY’s trailing-12-month gross profit margin of 81.01% is 45.3% higher than the industry average of 55.77%.
For the fiscal year that ended on March 31, 2023, ALPMY’s revenue rose 17.2% year-over-year to ¥1.52 trillion ($10.88 billion). The company’s core operating profit increased 17.2% year-over-year to ¥286.90 billion ($2.05 billion). In addition, its core profit stood at ¥224.62 billion ($1.61 billion), up 17.8% year-over-year, while its EPS increased 19.8% from the prior-year value to ¥123.4.
Analysts expect ALPMY’s revenue to grow 136.8% year-over-year to $10.85 billion in the fiscal year ending March 2024. Its EPS is expected to improve by 84% year-over-year to $0.80 in the current year. Additionally, it surpassed the revenue estimates in three of the trailing four quarters.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 5.3% and 4.4%, respectively.
Shares of ALPMY have gained 17.7% over the past nine months to close the last trading session at $16.10.
It’s no surprise that ALPMY has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth, Value, Stability, and Quality. Out of 168 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have ALPMY’s ratings for Momentum and Sentiment. Get all ALPMY ratings here.
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JNJ shares were trading at $159.35 per share on Thursday afternoon, up $0.83 (+0.52%). Year-to-date, JNJ has declined -8.46%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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