The pharmaceutical industry is expected to experience substantial growth in the coming years with expanding global medical needs. Also, the healthcare sector is relatively resilient during market downturns. Therefore, fundamentally strong pharma stocks Johnson & Johnson (JNJ), Novo Nordisk A/S (NVO), and AstraZeneca PLC (AZN) could be wise additions to your portfolio now.
According to U.S. pharmaceutical industry statistics, the U.S. will have a 43.72% market share in the global pharma industry in 2023. Also, the U.S. is expected to spend $605 to $635 billion on medicine by 2025.
The US generic drug market is expected to grow at 4% CAGR until 2028. The aging population, rising healthcare expenditure, a significant number of patent-expired branded products, and increased demand for generic medicines are some of the reasons driving the industry.
Furthermore, the global pharmaceutical market is expected to reach $1.48 trillion by 2028, exhibiting a CAGR of 5.8%. Investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 10.5% returns over the past nine months.
Let’s delve deeper into the fundamentals of the featured stocks.
Johnson & Johnson (JNJ)
JNJ and its subsidiaries research, develop, manufacture, and sell various products in the healthcare field worldwide. The company operates through three segments: Consumer Health; Pharmaceutical; and Medical Devices.
JNJ has paid dividends for 60 consecutive years. Over the last three years, JNJ’s dividend payouts have grown at 5.9% CAGR. While JNJ’s four-year average dividend yield is 2.62%. Its forward annual dividend of $4.76 translates to a 2.82% yield.
JNJ’s trailing-12-month EBIT margin of 27.66% is significantly higher than the 0.16% industry average, while its trailing-12-month EBITDA margin of 35.09% is 688.3% higher than the industry average of 4.45%.
During the fiscal second quarter that ended 2023, JNJ’s sales to customers increased 6.3% year-over-year to $25.53 billion. Its gross profit grew 7.6% from the same period in the prior year to $17.32 billion. The company’s adjusted net earnings amounted to $7.36 billion, while its adjusted EPS came in at $2.80, representing a 6.5% and 8.1% increase year-over-year.
JNJ’s revenue is expected to increase by 5.5% year-over-year to $100.15 billion for the year ending December 2023. Its EPS is expected to grow 5.9% year-over-year to $10.75 for the same period. It surpassed EPS estimates in all four trailing quarters. JNJ’s shares have gained 4.3% over the past three months to close the last trading session at $169.04.
JNJ’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.
JNJ has an A grade for Stability and a B for Growth, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #4 out of 165 stocks. Click here for the additional POWR Ratings for Value and Momentum for JNJ.
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the discovery, development, manufacturing, and marketing of pharmaceutical products. It operates through two business segments: Diabetes and Obesity care; and Biopharm.
NVO has paid dividends for 40 consecutive years. Over the last three years, NVO’s dividend payouts have grown at 12.6% CAGR. While NVO’s four-year average dividend yield is 1.65%. Its forward annual dividend of $2.36 translates to a 1.51% yield.
NVO’s trailing-12-month EBITDA margin of 46.13% is 936.1% higher than the industry average of 4.45%. Its trailing-12-month EBIT margin of 43.27% is significantly higher than the industry average of 0.16%.
For the fiscal first quarter that ended March 31, 2023, NVO’s net sales increased 26.9% year-over-year to Kr53.37 billion ($7.68 billion), while its operating profit came in at Kr17.09 billion ($3.59 billion), up 30.6% year-over-year. The company’s net profit and EPS came in at Kr13.59 billion ($2.85 billion) and Kr8.78, representing 39.4% and 41.2% increases year-over-year, respectively.
The consensus revenue estimate of $32.96 billion for the year ending December 2023 represents a 26.1% increase year-over-year. Its EPS is expected to grow 43.8% year-over-year to $5.19 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 49.9% over the past year to close the last trading session at $156.60.
NVO’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Quality and a B for Growth, Value, Sentiment and Stability. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated NVO for Momentum. Get all NVO ratings here.
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 has paid dividends for 23 consecutive years. Over the last three years, AZN’s dividend payouts have grown at 1.18% CAGR. While AZN’s four-year average dividend yield is 2.52%. Its forward annual dividend of $0.93 translates to a 1.34% yield.
AZN’s trailing-12-month EBITDA margin of 39.59% is 789.2% higher than the industry average of 4.45%. Its trailing-12-month EBIT margin of 28.91% is significantly higher than the industry average of 0.16%.
AZN’s total revenues increased 6% year-over-year to $11.42 billion for the second quarter (ended June 30, 2023), while its operating profit grew 355.7% from the year-ago value to $2.46 billion. The company’s profit after tax and EPS increased 405.6% and 408.7% from the prior-year quarter to $1.82 billion and $1.17, respectively.
Analysts expect AZN’s revenue to increase 3.1% year-over-year to $45.72 billion for the year ending December 2023. Its EPS is expected to grow 10.2% year-over-year to $3.67 for the same period. It surpassed EPS estimates in three of four tailing quarters. Over the past nine months, the stock has gained 13.8% to close the last trading session at $69.40.
AZN’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.
It is ranked #7 in the same industry. It has an A grade for Growth and a B for Value, Stability, Sentiment, and Quality. To see additional AZN’s rating for Momentum, click here.
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JNJ shares were trading at $171.55 per share on Monday morning, up $2.51 (+1.48%). Year-to-date, JNJ has declined -1.45%, versus a 18.11% 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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