3 Pharma Stocks for Value Investors
The pharmaceutical industry is well-positioned to witness solid long-term growth thanks to the fast-expanding market for drugs and therapies. Moreover, given the consistent product demand, the pharma business is less susceptible to economic cycles.
Given the uncertainties surrounding the economy and the industry’s solid long-term growth prospects, investors could consider buying fundamentally strong pharma stocks GSK plc (GSK), Horizon Therapeutics Public Limited Company (HZNP), and Neurocrine Biosciences, Inc. (NBIX), which appear undervalued compared to their peers.
Before diving deeper into their fundamentals, let’s discuss what’s shaping the pharma industry’s prospects.
Pharmaceutical companies have been investing heavily in research and development (R&D) and expanding their manufacturing capabilities to develop advanced medicines and therapies to cater to the requirements of the fast-growing global population.
The rise in chronic diseases and a rapidly aging population drive the pharmaceutical industry’s growth. The pharmaceutical industry’s revenue is expected to grow at a CAGR of 5.8% to reach $1.48 trillion by 2028.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from VanEck Pharmaceutical ETF’s (PPH) 15.7% returns over the past year.
In light of these encouraging trends, let’s look at the fundamentals of the three best Medical – Pharmaceuticals stocks, beginning with number 3.
Stock #3: GSK plc (GSK)
Headquartered in Brentford, the United Kingdom, GSK researches, develops, and manufactures vaccines and specialty medicines to prevent and treat diseases. It operates through four segments: Pharmaceuticals, Pharmaceuticals R&D, Vaccines, and Consumer Healthcare.
On June 28, 2023, GSK announced that it completed the acquisition of BELLUS.
GSK’s Chief Commercial Officer Luke Miels said, “The acquisition of BELLUS is highly synergistic with GSK’s expertise in respiratory medicines and is further supported by GSK’s leading R&D, manufacturing, and commercialization capabilities. We are now focused on progressing camlipixant through phase III trials to offer a therapeutic option for RCC patients as soon as possible.”
In terms of forward non-GAAP P/E, GSK’s 9.19x is 53.5% lower than the 19.77x industry average. Its 6.92x forward EV/EBITDA is 47.9% lower than the 13.29x industry average. Likewise, its 8.29x forward EV/EBIT is 51.3% lower than the 17x industry average.
GSK’s turnover for the second quarter ended June 30, 2023, increased 3.6% year-over-year to £7.18 billion ($9.04 billion). Its adjusted operating profit rose 8.1% over the prior-year quarter to £2.17 billion ($2.73 billion). The company’s adjusted profit after taxation from continuing operations increased 9.9% year-over-year to £1.70 billion ($2.14 billion). Also, its adjusted EPS from continuing operations rose 11.8% year-over-year to 38.8p.
Analysts expect GSK’s EPS and revenue for the quarter ending September 30, 2023, to increase 3.8% and 7.8% year-over-year to $1.12 and $9.62 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 10.5% to close the last trading session at $35.03.
GSK’s POWR Ratings reflect solid prospects. It 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.
It is ranked #12 out of 159 stocks in the Medical – Pharmaceuticals industry. It has an A grade for Value and a B for Stability and Quality. To see the additional POWR Ratings of GSK for Growth, Momentum, and Sentiment, click here.
Stock #2: Horizon Therapeutics Public Limited Company (HZNP)
Based in Dublin, Ireland, HZNP is a biotechnology company that focuses on discovering, developing, and commercializing medicines that address the critical needs of people impacted by rare, autoimmune, and severe inflammatory diseases. Its portfolio comprises 12 medicines in the areas of rare diseases, gout, ophthalmology, and inflammation.
On September 1, 2023, Amgen Inc. (AMGN) and HZNP announced the entry into a consent order agreement with the Federal Trade Commission (FTC), helping resolve the pending FTC administrative lawsuit.
With the consent order agreement, AMGN and HZNP expect that the parties will jointly file stipulated proposed orders to dismiss the preliminary injunction motion and dissolve the temporary restraining order in the U.S. District Court for the North District of Illinois. Both companies will seek the final approvals required under Irish law to close the acquisition.
In terms of forward non-GAAP PEG, HZNP’s 1.59x is 22.9% lower than the 2.06x industry average.
For the fiscal second quarter ended June 30, 2023, HZNP’s net sales rose 7.8% year-over-year to $944.96 million. Its non-GAAP net income increased 10.4% over the prior-year quarter to $280.06 million. The company’s adjusted EBITDA increased 4.5% year-over-year to $320.38 million. Its non-GAAP EPS came in at $1.20, representing an increase of 12.1% year-over-year.
For the quarter ending September 30, 2023, HZNP’s revenue is expected to increase 3.5% year-over-year to $957.75 million. Its EPS for the quarter ending December 31, 2023, is expected to increase 13.8% year-over-year to $1.41. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 89.6% to close the last trading session at $115.30.
HZNP’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
Within the same industry, it is ranked #11. It has a B grade for Growth, Value, and Quality. Click here to see HZNP’s Momentum, Stability, and Sentiment ratings.
Stock #1: Neurocrine Biosciences, Inc. (NBIX)
NBIX discovers, develops, and markets pharmaceuticals for neurological, endocrine, and psychiatric disorders. The company’s portfolio includes treatment for tardive dyskinesia, Parkinson’s disease, endometriosis, and uterine fibroids, as well as clinical programs in various therapeutic areas. Its products include INGREZZA, DYSVAL, ONGENTYS, ORILISSA, ORIAHNN, and ALKINDI SPRINKLE.
On August 18, 2023, NBIX announced that the U.S. Food and Drug Administration (FDA) approved INGREZZA (valbenazine) capsules for treating adults with chorea associated with Huntington’s disease.
In terms of forward non-GAAP PEG, NBIX’s 0.63x is 69.4% lower than the 2.06x industry average.
NBIX’s revenues for the second quarter ended June 30, 2023, increased 19.7% year-over-year to $452.70 million. Its non-GAAP net income increased 53.1% over the prior-year quarter to $125.70 million. In addition, its non-GAAP EPS came in at $1.25, representing an increase of 48.8% year-over-year.
Street expects NBIX’s EPS and revenue for the quarter ending September 30, 2023, to increase 21.5% and 22.8% year-over-year to $1.31 and $476.46 million, respectively. Over the past three months, the stock has gained 21.3% to close the last trading session at $110.63.
NBIX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It is ranked #10 in the Medical – Pharmaceuticals industry. It has an A grade for Quality and a B for Value and Sentiment. To see the NBIX’s Growth, Momentum, and Stability ratings, click here.
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GSK shares were trading at $35.03 per share on Monday afternoon, down $0.10 (-0.28%). Year-to-date, GSK has gained 2.66%, versus a 18.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More…
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