The pharmaceutical industry is poised for significant expansion, thanks to advanced technologies like AI and rising demand for medical needs. Therefore, fundamentally strong pharma stocks Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), and Lipocine Inc. (LPCN) could be ideal value investments.
The global pharmaceutical market is expected to reach $1.48 trillion by 2028, exhibiting a CAGR of 5.8%. The industry’s largest segment is oncology drugs, with a projected market volume of $188.20 billion in 2023.
Moreover, the market for generative AI in drug discovery is expected to reach $1.13 trillion by 2032, with a CAGR of 27.1%. Deep learning algorithms are improving accuracy in predicting drug candidates and targets as generative AI in drug discovery evolves. AI integration with high-throughput screening and lab automation is also on the rise.
Investors’ interest in pharma stocks is evident from Invesco Dynamic Pharmaceuticals ETF (PJP) 5.1% returns over the past month.
The pharmaceutical sector has shown to be a safe pick for investors due to its consistent revenue streams and long-term growth prospects.
Let’s delve deeper into the fundamentals of the featured stocks.
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.
MRK’s trailing-12-month EBITDA margin of 21.14% is 304.4% higher than the industry average of 5.23%. Its trailing-12-month EBIT margin of 14.87% is significantly higher than the 0.24% industry average.
MRK has paid dividends for 33 consecutive years. Over the last three years, MRK’s dividend payouts have grown at 8.3% CAGR. MRK’s four-year average dividend yield is 2.95%. Its forward annual dividend of $2.92 translates to a 2.69% yield.
During the fiscal second quarter that ended June 30, 2023, MRK’s sales increased 3% year-over-year to $15.04 billion. Its pharmaceutical sales increased 5.5% year-over-year to $13.46 billion, while animal health sales came in at $1.46 billion. Its gross margin was 73.2% compared with 71.1% in the previous-year quarter.
The consensus revenue estimate of $62.41 billion for the year ending December 2024 represents a 5.6% increase year-over-year. Its EPS is expected to increase 183.8% year-over-year to $8.52 for the same period. It has surpassed EPS estimate in each of the trailing four quarters. The stock has gained 20% over the past year to close the last trading session at $108.73.
MRK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MRK has a B grade for Growth, Stability and Quality. It is ranked #17 out of 166 stocks Medical – Pharmaceuticals industry. Click here for the additional POWR Ratings for Sentiment, Value and Momentum for MRK.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, infectious diseases, COVID-19 prevention and treatment, etc.
PFE’s trailing-12-month EBITDA margin of 39.86x is 662.6% higher than the industry average of 5.23x. Its trailing-12-month EBIT margin of 32.53% is significantly higher than the industry average of 0.24%.
PFE has paid dividends for 33 consecutive years. Over the last three years, PFE’s dividend payouts have grown at 4.7% CAGR. PFE’s four-year average dividend yield is 3.74%. Its forward annual dividend of $1.64 translates to a 4.63% yield.
For the second quarter, which ended June 30, 2023, PFE’s total revenues amounted to $12.73 billion. During the same period, the company’s adjusted net income and adjusted EPS came in at $3.84 billion and $0.67, respectively.
Its total current assets came in at $73.35 billion for the period that ended July 2, 2023, compared to $51.26 billion for the period that ended December 31, 2022. Its total assets came in at $220.17 billion, compared to $197.21 billion for the same period.
PFE’s revenue is expected to increase by marginally year-over-year to $66.86 billion for the year ending December 2024. Its EPS is expected to grow 3.9% year-over-year to $3.43 for the same period. It has surpassed EPS estimate in each of the trailing four quarters. PFE’s shares have gained marginally intraday to close the last trading session at $35.48.
It has an A grade for Value in our proprietary system. It is ranked #59 in the same industry.
Beyond what is stated above, we’ve also rated PFE for Growth, Momentum, Stability, Sentiment and Quality. Get all PFE ratings here.
Lipocine Inc. (LPCN)
LPCN a clinical-stage biopharmaceutical company, engages in the research and development for the delivery of drugs for the treatment of central nervous system (CNS) disorders.
LPCN’s trailing-12-month gross profit margin of 100% is 80.6% higher than the 55.37% industry average. Its trailing-12-month CAPEX / Sales of 183.18% is significantly higher than the industry average of 4.62%.
LPCN cash and cash equivalents came in at $5.01 million for the period that ended June 30, 2023, compared to $3.15 million for the period that ended December 31, 2022. Its total liabilities and stockholders’ equity came in at $30.48 million, compared to $37.54 million for the same period.
Analysts expect LPCN’s revenue is expected to increase by 118.1% year-over-year to $1.09 million for the year ending December 2023. Over the past three months the stock has gained 41.4% to close the last trading session at $4.99.
LPCN has an overall rating of B, which equates to Buy in our POWR Ratings system.
The stock has a B grade for Growth, Value, and Sentiment. It is ranked #24 in the same industry. For additional LPCN ratings for Momentum, Stability and Quality, click here.
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MRK shares were trading at $109.15 per share on Thursday afternoon, up $0.42 (+0.39%). Year-to-date, MRK has declined -0.28%, versus a 15.59% 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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