The pharmaceutical market has been growing steadily in recent years, mainly due to the advancement of efficient and sophisticated technologies. Given this backdrop, it could be wise to consider fundamentally strong pharma stocks, Eli Lilly and Company (LLY), Johnson & Johnson (JNJ), and Merck & Co., Inc. (MRK) with strong pipelines.
The growing prevalence of chronic diseases, the expanding elderly population, rising healthcare spending by government organizations worldwide, and significant efforts to enhance the affordability and accessibility of pharmaceuticals are driving growth in the pharma industry. Therefore, the U.S. pharmaceutical market is expected to grow at a CAGR of 5.5% from 2024 to 2030.
Further, the global personalized medicine market is poised to grow at a notable CAGR of 8.1% by 2033. The primary drivers of growth in the global personalized medicine market are the advancement of efficient and sophisticated technologies, heightened public awareness about personalized medicine, expanding government initiatives globally, and the burgeoning development of genetic databases.
Given these favorable industry trends, let’s look at the fundamentals of the top Medical - Pharmaceuticals stocks, beginning with the third choice.
Stock #3: Eli Lilly and Company (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. The company provides medicines for diabetes, obesity, rheumatoid arthritis, and atopic dermatitis, as well as products for oncology.
On July 8, 2024, LLY and Morphic Holding, Inc. (MORF) announced a definitive agreement for LLY to acquire Morphic, a biopharmaceutical company developing oral integrin therapies for the treatment of serious chronic diseases.
On June 5, LLY announced a collaboration with OpenAI that would allow LLY to leverage OpenAI's generative AI to invent novel antimicrobials to treat drug-resistant pathogens. Antimicrobial resistance (AMR) is one of the top public health and development threats across the global health landscape.
LLY’s trailing-12-month gross profit margin of 80.16% is 40% higher than the industry average of 57.25%. Further, the stock’s trailing-12-month EBIT margin of 32.86% is significantly higher than the industry average of 1.89%. Also, LLY’s trailing-12-month EBITDA margin of 37.22% is 544.4% higher than the industry average of 5.78%.
For the first quarter that ended March 31, 2024, LLY’s revenue increased 26% year-over-year to $8.77 billion. Its non-GAAP gross margin rose 32.5% from the year-ago value to $7.23 billion. Also, the company’s non-GAAP net income and non-GAAP EPS were $2.34 billion and $2.58, up 59.5% and 59.3% from the previous year’s quarter, respectively.
According to its updated 2024 financial guidance, LLY expects revenue in the range of $42.40-$43.60 billion, up from the prior guidance of $40.40-$41.60 billion. Its non-GAAP earnings per share are expected to be from $13.50 to $14, compared to the previous guidance of $12.20-$12.70.
Street expects LLY’s revenue for the second quarter (ended June 2024) to increase 20.2% year-over-year to $10 billion. Its EPS for the current quarter is expected to grow 32% year-over-year to $2.78. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
LLY’s stock has gained 102.5% over the past year and 55.4% year-to-date to close the last trading session at $905.59.
LLY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Growth. LLY is ranked #40 among 153 stocks in the Medical - Pharmaceuticals industry.
Click here to access additional LLY ratings (Momentum, Value, Sentiment, Quality, and Stability).
Stock #2: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine and MedTech.
On July 17, 2024, JNJ declared a cash dividend of $1.24 per share on the company’s common stock for the third quarter of 2024, payable on September 10, 2024.
The company pays $4.96 annually, which translates to a yield of 3.28% on the prevailing price level. Its four-year average dividend yield is 2.70%. The company has raised its dividend payouts at a CAGR of 5.6% and 5.7% over the past three and five years, respectively.
JNJ’s trailing-12-month EBIT margin of 27.53% is significantly higher than the industry average of 1.89%. Likewise, the stock’s trailing-12-month EBITDA and levered FCF margins of 35.74% and 28.37% are significantly higher than the industry averages of 5.78% and 1.28%, respectively.
JNJ’s sales to customers for the second quarter that ended June 30, 2024, stood at $22.45 billion, up 4.3% year-over-year. Its gross profit grew 3.5% over the prior-year quarter to $15.58 billion. In addition, its adjusted net earnings and adjusted EPS increased 1.6% and 10.2% from the year-ago quarter to $6.84 billion and $2.82, respectively.
Analysts predict JNJ’s revenue for the third quarter (ending September 2024) to increase 4.1% year-over-year to $22.21 billion, and its EPS for the quarter ending December 2024 is projected to grow 3.5% year-over-year to $2.37. Moreover, the company has an excellent earnings surprise history, surpassing consensus EPS estimates in each of the trailing four quarters.
Shares of JNJ have gained 8.2% over the past three months to close the last trading session at $156.58.
JNJ’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
JNJ has an A grade for Quality and a B for Stability and Value. It is ranked #8 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have JNJ ratings for Momentum, Growth, and Sentiment. Get all JNJ ratings here.
Stock #1: Merck & Co., Inc. (MRK)
MRK is a global healthcare company. It operates in the Pharmaceutical and Animal Health segments. Its Pharmaceutical segment offers human health pharmaceutical products and the Animal Health segment discovers, develops, manufactures, and markets veterinary pharmaceuticals. It caters to drug wholesalers and retailers, hospitals, and government agencies.
On July 12, 2024, MRK, known as MSD outside of the United States and Canada, announced the completion of the acquisition of Eyebiotech Limited (EyeBio). EyeBio is now a wholly-owned subsidiary of MSD.
Dr. Dean Y. Li, president of Merck Research Laboratories, said, "The EyeBio acquisition further diversifies our late-stage pipeline with the addition of a promising candidate based on novel biology and genetics for the treatment of certain retinal diseases."
MRK’s trailing-12-month gross profit margin of 74.85% is 30.8% higher than the 57.25% industry average. Its 24.54% trailing-12-month EBITDA margin is 498% higher than the 5.78% industry average. Likewise, the stock’s 15.62% trailing-12-month levered FCF margin is significantly higher than the 1.28% industry average.
For the first quarter that ended March 31, 2024, MRK’s sales increased 8.9% year-over-year to $15.77 billion, of which its sales from KEYTRUDA rose 19.9% year-over-year to $6.95 billion. The company’s income before taxes grew 55.3% from the year-ago value to $5.67 billion.
In addition, non-GAAP net income attributable to MRK and non-GAAP EPS of $5.28 billion and $2.07 indicate growth of 48.1% and 47.8% year-over-year, respectively.
Street expects MRK’s revenue for the second quarter ended June 2024 to increase 5.3% year-over-year to $15.83 billion. Its EPS is expected to be $2.13 for the same quarter. In addition, the company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
MRK’s stock has gained 20.9% over the past nine months to close the last trading session at $125.89.
MRK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value, Stability, Quality, and Sentiment. Within the same industry, MRK is ranked first.
Click here to access additional ratings of MRK for Momentum.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
LLY shares were trading at $847.69 per share on Thursday afternoon, down $57.90 (-6.39%). Year-to-date, LLY has gained 45.92%, versus a 16.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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