The pharmaceutical industry is expected to grow rapidly due to global medical needs, technological advancements, an aging population, innovative treatments, precision medicine, and personalized healthcare.
Given the industry’s growth prospects, fundamentally strong pharma stocks Neurocrine Biosciences, Inc. (NBIX), AstraZeneca PLC (AZN) and Johnson & Johnson (JNJ) might be worth buying.
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects pharma industry.
According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 6.2% to reach $1.47 trillion by 2028. Oncology Drugs is the industry’s largest segment, with a forecast market volume of $214.10 billion in 2024.
According to the McKinsey Global Institute (MGI), the technology has the potential to generate $60 billion to $110 billion in annual economic value for the pharmaceutical and medical-product industries. This is due to its ability to improve productivity by accelerating the process of identifying compounds for potential new drugs, accelerating development and approval, and improving marketing.
Moreover, the AI in pharma industry is predicted to expand to $5.62 billion by 2028, with a CAGR of 28.5%. Investors’ interest in pharmaceutical stocks can be gauged from iShares U.S. Pharmaceutical ETF’s (IHE) 16.4% returns over the past three 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 pick.
Stock #3: Neurocrine Biosciences, Inc. (NBIX)
NBIX develops and markets pharmaceuticals targeting neurological, endocrine, and psychiatric disorders. Its portfolio encompasses remedies for tardive dyskinesia, Parkinson’s disease, endometriosis, and uterine fibroids, supplemented by ongoing clinical programs spanning diverse therapeutic areas.
In terms of trailing-12-month non-GAAP PEG multiple, NBIX is trading at 0.78 is 60.1% lower than the industry average of 1.96.
NBIX’s trailing-12-month EBIT margin of 20.92% is significantly higher than the industry average of 0.05%. Its trailing-12-month levered FCF margin is 21.47% is significantly higher than the industry average of 0.09%.
For the fiscal 2023 fourth quarter that ended December 31, 2023, NBIX’s total revenues increased 25% year-over-year to $515.20 million. Its operating income rose 45.4% from the year-ago value to $150.30 million. Also, the company’s non-GAAP net income and non-GAAP EPS grew 26.5% and 24.2% from the prior year’s period to $157.70 million and $1.54, respectively.
Analysts expect NBIX’s revenue to increase 16.6% year-over-year to $2.20 billion for the year ending December 2024. Its EPS is expected to grow 58.4% year-over-year to $6.12 for the same period. The stock has gained 36.3% over the past nine months to close the last trading session at $131.77.
NBIX’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.
NBIX has an A grade for Quality and a B for Growth and Value. Within the Medical - Pharmaceuticals industry, it is ranked #12 out of 161 stocks. To see additional POWR Ratings for Stability, Sentiment and Momentum for NBIX, click here.
Stock #2: AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN is a renowned biopharmaceutical company focusing on discovering, developing, manufacturing, and commercializing prescription medicines. Its marketed products treat oncology, covid-19, respiratory, cardiovascular, renal, and metabolism diseases, etc.
AZN’s forward non-GAAP P/E of 15.17x is 19% lower than the industry average of 18.73x. Its forward non-GAAP PEG of 1.27x is 35% lower than the industry average of 1.96x.
AZN’s trailing-12-month EBIT margin of 17.89% is significantly higher than the industry average of 0.05%. Its trailing-12-month levered FCF margin is 15.69% is significantly higher than the industry average of 0.09%.
AZN’s total revenues increased 7.3% year-over-year to $12.02 billion for the fourth quarter (ended December 30, 2023), while its operating profit grew 12.8% from the year-ago value to $1.23 billion. The company’s profit after tax and EPS came in at $959 million and $0.62, up 6.3% and 6.9% year-over-year, respectively.
The consensus revenue came in at $50.94 billion for the fiscal year ending December 2024 represents a 11.2% increase year-over-year. Its EPS is expected to grow 11.9% year-over-year to $4.06 for the same year. AZN’s shares have gained marginally intraday to close the last trading session at $61.66.
It’s no surprise that AZN has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Growth, Stability and Quality. It is ranked #10 in the same industry.
Beyond what is stated above, we’ve also rated AZN for Sentiment and Momentum. Get all AZN ratings 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, amongst others.
On January 8, 2023, JNJ unveils that it has reached a definitive agreement to acquire Ambrx Biopharma, Inc., or Ambrx (AMAM), a clinical-stage biopharmaceutical company with a proprietary synthetic biology technology platform for designing and developing next-generation antibody drug conjugates (ADCs), in an all-cash merger transaction for approximately $2.0 billion in equity value, or $1.9 billion net of estimated cash acquired.
This acquisition will help JNJ boost its position in the biopharmaceutical business and broaden its portfolio of novel medications.
JNJ’s forward EV/ EBITDA of 11.97x is 9.5% lower than the industry average of 13.23x. Its forward EV/EBIT of 13.10x is 22.3% lower than the industry average of 16.85x.
JNJ’s trailing-12-month EBIT margin of 25.85% is significantly higher than the industry average of 0.05%. Its trailing-12-month levered FCF margin is 21.46% is significantly higher than the industry average of 0.09%.
For the fourth quarter ended December 31, 2023, JNJ’s sales increased 7.3% year-over-year to $21.40 billion. Its gross profit increased 5.4% year-over-year to $14.60 billion. The company’s adjusted net earnings increased 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.
Street expects JNJ’s revenue to come in at $88.44 billion for the year ending December 2024, increase 3.9% year-over-year. Its EPS is expected to grow 7.6% year-over-year to $10.67 for the same period. Shares of JNJ have gained 5.5% over the past three months to close the last trading session at $155.74.
JNJ has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
JNJ’s is ranked #8 in the same industry. It has a B grade for Stability, Value and Quality. To see additional JNJ’s ratings for Growth, Sentiment and Momentum, click here.
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JNJ shares were trading at $157.37 per share on Thursday morning, up $1.63 (+1.05%). Year-to-date, JNJ has gained 0.40%, versus a 5.12% 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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