With rising medical requirements worldwide, increasing research and development (R&D) efforts, and acceptance of the newest digital technologies, the pharmaceutical sector is well-positioned for significant growth and profitability in the future years.
Given the industry’s bright growth prospects, fundamentally sound pharma stocks Merck & Co., Inc. (MRK), Collegium Pharmaceutical, Inc. (COLL) and Johnson & Johnson (JNJ) could be ideal investments for last-minute year-end profits.
In our world today, the pharmaceutical industry plays a crucial role, essentially helping people lead longer, healthier lives. Investors are naturally drawn to its resilient nature, providing a stable demand for products that remains unwavering regardless of economic ups and downs.
This sector enjoys favorable conditions thanks to an aging population, heightened healthcare spending, a surge in chronic diseases, the call for personalized medicine, supportive regulatory landscapes, and increased investments in research and development. It's a scenario that not only underscores the industry's importance but also ensures a steadfast environment for ongoing growth and stability.
The pharmaceutical market is projected to reach $1.48 trillion by 2028, growing at a CAGR of 5.8% during the forecast period (2023-2028). For the current year, revenue is expected to total $1.12 trillion, with Oncology Drugs being the largest market segment, reaching a projected market volume of $188.20 billion.
AI is reshaping the pharmaceutical industry, driving innovation, optimizing processes, fostering collaborations, and revolutionizing recruitment. It efficiently analyzes vast datasets in drug research, identifying potential treatments, while AI-powered robots enhance manufacturing efficiency and reduce errors. The global AI in the pharmaceutical market is projected to reach $11.81 billion by 2032, growing at a CAGR of 29.3%.
With these favorable trends in mind, let’s look at the fundamentals of the three best Medical – Pharmaceuticals stocks, beginning with the third choice.
Stock #3: Merck & Co., Inc. (MRK)
MRK is a global healthcare company. It operates through two segments: Pharmaceutical and Animal Health. The Pharmaceutical segment provides human health pharmaceutical products and vaccine products. The Animal Health segment discovers, develops, manufactures, and markets veterinary pharmaceuticals.
On December 22, 2023, MRK announced that the U.S. FDA has accepted and granted Priority Review to the Biologics License Application (BLA) for patritumab deruxtecan (HER3-DXd), jointly developed with Daiichi Sankyo.
With a Prescription Drug User Fee Act (PDUFA) date set for June 26, 2024, this potential first-in-class treatment for EGFR-mutated NSCLC, if approved, underscores Merck's commitment to advancing innovative oncology solutions and expanding its pharmaceutical portfolio.
In terms of the trailing-12-month EBIT margin, MRK’s 15.57% is substantially higher than the 0.81% industry average. Likewise, its 21.81% trailing-12-month EBITDA margin is 303.9% higher than the industry average of 5.40%. Furthermore, the stock’s 6.78% trailing-12-month Capex/Sales is 59.8% higher than the industry average of 4.24%.
MRK’s sales, for the third quarter that ended September 30,2023, increased 6.7% year-over-year to $15.96 billion. It’s income before taxes increased 56.9% over prior-year quarter to $5.62 billion. Also, the company’s non-GAAP net income and non-GAAP EPS rose 15.4% and 15.1% year-over-year to $5.43 billion and $2.13, respectively.
Analysts expect MRK’s revenue and EPS for the quarter ending March 2024 to increase 3% and 42.7% year-over-year to $14.93 billion and $2, respectively. Also, the company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has gained 5.9% to close the last trading session at $107.70.
MRK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Value, Stability, and Quality. It is ranked #17 of 156 stocks within the Medical – Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MRK’s ratings for Growth, Sentiment, and Momentum here.
Stock #2: Collegium Pharmaceutical, Inc. (COLL)
COLL operates as a specialty pharmaceutical company that develops and commercializes pain management medicines. The company’s portfolio includes Xtampza ER, an abuse-deterrent and oil formulation of oxycodone; Nucynta ER and Nucynta IR, which are formulations of tapentadol; Belbuca, a buccal film that contains buprenorphin; and Symproic.
On November 9, 2023, COLL announced that it entered entered an Accelerated Share Repurchase (ASR) agreement to repurchase $25 million of the company’s common stock along with Jefferies LLC. This ASR execution is part of the $100 million share repurchase program authorized by its Board of Directors in January 2023.
“Our record financial performance in 2023 year-to-date puts Collegium on track to deliver a banner year. Our financial strength, underscored by robust cash generation, enables us to execute on our capital deployment strategy,” said Joe Ciaffoni, President and Chief Executive Officer of Collegium.
In terms of the trailing-12-month gross profit margin, COLL’s 77.97% is 37.2% higher than the 56.84% industry average. Likewise, its 43.61% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.29%. Furthermore, the stock’s 0.46x trailing-12-month asset turnover ratio is 18% higher than the industry average of 0.39x.
For the third quarter that ended September 30, 2023, COLL’s net product revenues increased 7.6% year-over-year to $136.71 million. Its gross profit increased 36.5% from the year-ago value to $80.31 million. The company’s adjusted EBITDA increased 19.4% over the prior-year quarter to $89.40 million.
In addition, COLL’s adjusted net income increased 29.3% over the prior year quarter to $55 million, and its adjusted EPS came in at $1.34, representing an increase of 21.9% year-over-year.
Street expect COLL’s revenue and EPS for the fiscal quarter ending December 2023 to increase 14% and 28.8% year-over-year to $147.80 million and $1.40, respectively.
Over the past three months, COLL’s stock has gained 35% year-over-year to close the last trading session at $30.05.
MITFY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and B for Growth and Value. COLL is ranked #12 out of 156 stocks in the same industry.
Click here to access additional COLL ratings for Stability, Sentiment, and Momentum.
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 November 30, 2023, JNJ MedTech announced the completion of the acquisition of Laminar, Inc., a medical device company focusing on eliminating the left atrial appendage in patients with non-valvular atrial fibrillation (AFib).
This acquisition marks a significant milestone for JNJ MedTech in expanding its portfolio in the field of atrial fibrillation treatment. The deal will complement Biosense Webster’s strengths in electrophysiology and Intracardiac cho strengths and deepen its presence with interventional cardiologists and electrophysiologists.
In terms of the trailing-12-month EBIT margin, JNJ’s 27.97% is substantially higher than the 0.81% industry average. Likewise, its 35.49% trailing-12-month EBITDA margin is 557.5% higher than the industry average of 5.40%. Furthermore, the stock’s 21.46% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.29%.
For the third quarter ended September 30, 2023, JNJ’s sales increased 6.8% year-over-year to $21.35 billion. Its gross profit increased 6.7% year-over-year to $14.75 billion. The company’s adjusted net earnings from continuing operations after tax increased 14.1% over the prior-year quarter to $6.78 billion. In addition, its adjusted EPS came in at $2.66, representing an increase of 19.3% year-over-year.
For the fiscal year ending December 2024, JNJ’s revenue and EPS are expected to increase 3.7% and 8.3% year-over-year to $87.87 million and $10.74, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has gained 3.1% year-over-year to close the last trading session at $155.46.
It’s no surprise that JNJ has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It is ranked #10 in the Medical – Pharmaceuticals industry. It has a B grade for Value, Stability, and Quality. Click here to see JNJ’s Growth, Momentum, and Sentiment ratings.
What To Do Next?
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JNJ shares were trading at $155.95 per share on Tuesday afternoon, up $0.49 (+0.32%). Year-to-date, JNJ has declined -9.04%, versus a 26.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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