Since the onset of the pandemic—which hamstrung many other business sectors with severe and various public health restrictions—the pharmaceuticals sector has taken center stage. This is evident in the SPDR S&P Pharmaceuticals ETF’s (XPH) 43.7% returns from March 23, 2020, to March 23, 2021. Indeed, optimism surrounding the prospects of the pharmaceutical industry is justified given that the industry has become the key to saving the world from an unprecedented healthcare crisis. With several countries prioritizing the inoculation of their populations to fight coming new strains of the COVID-19 virus, pharmaceutical companies are currently focused on boosting their manufacturing capacity to meet the growing demand.
The pharma sector is expected to experience rapid growth due to positive sentiments fueled by increasing vaccination drives globally, surging demand for customized medicines and healthcare products, and increasing investments in R&D for developing drugs to meet growing demand from an aging population. The global pharmaceuticals market is expected to reach $1700.97 billion in 2025, representing an 8% CAGR.
As such, we think major companies in this space, Johnson & Johnson (JNJ), Pfizer Inc. (PFE), and Bristol-Myers Squibb Co. (BMY), which are investing heavily in R&D to diversify their portfolios and are expected to maintain strong financials, should deliver excellent returns this year and beyond as demand for vaccines and healthcare products continue to soar.
Johnson & Johnson (JNJ)
JNJ is primarily involved in researching, developing, manufacturing, and distributing various healthcare products aimed at consumer health and well-being. Consumer, Pharmaceutical, and Medical Devices are the company’s three business segments. It sells its products to the public, retail shops, wholesalers, hospitals, and healthcare professionals. Also, the company has gained significant attention over the past several months due to its Janssen COVID-19 vaccine, which has become a major player in the COVID-19 vaccine market. JNJ is based in New Brunswick, New Jersey.
This month, JNJ announced the availability of a next-generation presbyopia-correcting intraocular lens (PC-IOL) in the United States and Canada. With this lens, patients will be able to experience the greatest range of continuous and near-vision possible. This product should help JNJ attain global leadership in PC-IOLs.
Also this month, Jannsen, the pharmaceutical division of JNJ, announced that it had gained European Commission clearance for the extended use of DARZALEX to treat systemic light chain (AL) amyloidosis. This makes Jannsen‘s DARZALEX the first authorized drug for the treatment of AL in Europe. This should aid the company in establishing greater brand recognition in the European market.
During the first quarter, ended April 20, 2021, JNJ’s worldwide sales increased 7.9% year-over-year to $22.32 billion. Its net income increased 6.9% year-over-year to $6.20 billion, while its EPS grew 6.9% from the prior-year quarter to $2.32. Furthermore, the company’s gross profit increased 12% year-over-year to $15.26 billion over this period.
A $9.52 consensus EPS estimate for the current year represents an 18.6% improvement year-over-year. JNJ also has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The $91.3 billion consensus revenue estimate for the current year represents a 10.5% increase from the same period last year. The stock has gained 18% over the past year and 11.5% over the past nine months.
JNJ’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JNJ is also rated an A grade for Stability, and a B grade for Growth and Sentiment. Within the Medical-Pharmaceuticals industry, it is ranked #1 of 225 stocks. To see more of JNJ’s component grades, click here.
Pfizer Inc. (PFE)
PFE is a biopharmaceutical company that researches, develops, and produces healthcare products. Pfizer innovative health (PH) and Pfizer Essential Health (EH) are the two business segments through which the New York City company operates. PFE is known primarily for its various vaccines, including the COVID-19 vaccine under the Prevnar 13/Prevenar 13 (pediatric/adult) and the Pfizer-BioNTech COVID-19 vaccine brands.
This month, PFE’s PREVNAR 20TM (Pneumococcal 20-valent Conjugate Vaccine) was authorized by the United States Food and Drug Administration (FDA) to prevent invasive illness and pneumonia in adults aged 18 and up. This therapy might help prevent pneumococcal disease, including pneumonia in adults, and create a positive outlook for the company’s performance in the market.
During the first quarter, ended March 31, 2021, PFE’s revenue increased 44.6% year-over-year to $14.58 billion. The company’s net earnings increased 45.4% year-over-year to $4.88 billion, while its EPS grew 43.4% from the prior-year quarter to $0.86. Its revenues under its oncology segment increased 17.5% year-over-year to $2.86 billion over this period.
PFE is expected to generate 75.1% revenue growth of 75.1% in the current year. Its EPS is estimated to increase 69.4% year-over-year to $3.76 in 2021. Over the past year, PFE’s stock has gained 22.3%. Furthermore, it has gained 7.9% over the past three months.
PFE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Value, Growth, and Stability. In the Medical-Pharmaceuticals industry, it is ranked #3 of 225 stocks.
In total, we rate PFE on eight different levels. Beyond what we’ve stated above, we have also given PFE grades for Sentiment, Momentum, and Quality. Get all the PFE ratings here.
Bristol-Myers Squibb Co. (BMY)
BMY specializes in product development, licensing, manufacturing, distribution, and sale of biopharmaceutical products. The company offers a wide variety of products, including chemically manufactured drugs and therapies created through biological processes called biologics. Its product portfolio includes Opdivo for anti-cancer indications, Reblozyl for the treatment of anemia in adult patients with beta thalassemia, and Revlimid, an oral immunomodulatory drug, among others. BMY is based in New York City.
This month, the European Commission (EC) approved BMY’s Opdivo (nivolumab) in combination with Yervoy (ipilimumab) for the treatment of adult patients with mismatch repair deficiency (dMMR) or high microsatellite instability (MSI-H). This is the first time in the European Union that a dual immunotherapy treatment option for any GI malignancy has been authorized. This drug authorization could help BMY gain global recognition and boost its revenue growth.
During the first quarter, ended March 2021, BMY’s revenue increased 2.7% year-over-year to $11.07 billion, while its net income came in at $2.02 billion for the period, compared to a $775 million net loss in the first quarter of 2020. The company’s EPS was t $0.89, versus a $34 loss per share in the prior year period.
The company’s EPS is expected to grow 15.8% in 2021 to $7.46. Analysts expect BMY’s revenue to increase 8.6% year-over-year to $46.16 billion in 2021. BMY’s stock has gained 15.4% over the past year. Also, the stock has surged 11.4% over the past nine months.
It is no surprise that BMY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value, and a B for Growth and Quality. In the Medical-Pharmaceuticals industry, it is ranked #4 of 225 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the BMY ratings for Sentiment, Stability, and Momentum here.
Note that BMY is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
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JNJ shares were trading at $164.01 per share on Wednesday morning, down $0.02 (-0.01%). Year-to-date, JNJ has gained 5.52%, versus a 15.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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