The global pharmaceutical market is witnessing a ‘new normal’ in which the sector is expected to evolve with better commercial strategies and execution. In 2021, global pharma sales, excluding vaccines, measured at ex-manufacturers prices, increased 8% in value and 4% in volumes, which were above expectations.
In the United States, total drug spending grew 7.7% to $576.90 billion in 2021 and is projected to grow between 4% and 6% in 2022, according to the American Society of Health-System (ASHP). Experts believe increased drug spending was driven by higher usage and prices.
Furthermore, the global pharma market is projected to reach $1.70 trillion in 2025, excluding vaccines, with the United States and China representing more than 50% of the worldwide market. Significant opportunities in the sector have arisen as a direct consequence of the pandemic.
Given the favorable industry backdrop, fundamentally solid drug manufacturing stocks Merck & Co. Inc. (MRK), Bristol-Myers Squibb Company (BMY), and Bayer Aktiengesellschaft (BAYRY), which have witnessed a pullback amid the broader market slump, might be solid investments.
Merck & Co. Inc. (MRK)
MRK is a global healthcare company operating through its two broad segments of Pharmaceutical, which offers human health pharmaceutical products; and Animal Health, which develops and markets veterinary pharmaceuticals.
In May, MRK declared a quarterly dividend of $0.69 per share of its common stock for the third quarter of 2022, payable to shareholders on July 8. This reflects upon the company’s shareholder return ability.
In the same month, MRK announced that the European Commission had approved KEYTRUDA, MRK’s anti-PD-1 therapy in combination with chemotherapy, as a treatment after surgery for adults with locally advanced or early-stage triple-negative breast cancer (TNBC).
In April, it was approved for treating microsatellite instability-high (MSI-H) or deficient mismatch repair (dMMR) tumors in adults. These approvals allow the marketing of the KEYTRUDA regimen and monotherapy in all 27 European Union member states plus Iceland, Lichtenstein, Norway, and Northern Ireland, which might bolster the company’s revenues.
In terms of its forward non-GAAP PEG, MRK is trading at 1.05x, 40.5% lower than the industry average of 1.76x. Its forward non-GAAP P/E multiple of 11.44 is 36.8% lower than the industry average of 18.10.
MRK’s net sales increased 49.6% year-over-year to $15.90 billion in the first quarter of 2022. Its non-GAAP net income improved 84.2% from the prior-year period to $5.43 billion. The company’s non-GAAP EPS increased 84.5% from its year-ago value to $2.14. MRK’s net income has grown at a CAGR of 19.1% over the past three years, while its EPS has grown at a 20.1% CAGR over the same period.
The consensus EPS estimate of $1.69 for the fiscal second quarter (ending June 2022) indicates a 28.9% improvement year-over-year. The consensus revenue estimate of $13.60 billion for the same quarter reflects a 19.3% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 10.5% over the past year and 10.4% year-to-date to close Friday’s trading session at $84.62. However, it has declined 8.1% over the past month.
MRK’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MRK is rated an A in Growth and a B in Value, Stability, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #1 of 167 stocks. To see additional POWR Rating for Momentum for MRK, click here.
Bristol-Myers Squibb Company (BMY)
BMY engages in the discovery, development, licensing, manufacture, and sale of biopharmaceutical products globally. The company’s offerings include products for hematology, oncology, cardiovascular, immunology, fibrotic, neuroscience, and COVID-19 diseases.
In June, the company declared a quarterly dividend of $0.54 per share on its $.10 par value common stock, payable to shareholders on August 1. BMY also announced a quarterly dividend of $0.50 per share on its $2.00 convertible preferred stock, payable September 1.
On June 3, BMY announced a definitive merger agreement to acquire Turning Point Therapeutics for $76.00 per share. The acquisition is anticipated to close during the third quarter of 2022 and is expected to expand the company’s oncology franchise.
BMY’s non-GAAP forward P/E is multiple of 9.76 is 46.1% lower than the industry average of 18.10. In terms of its forward Price/Cash Flow, the stock is currently trading at 9.45x, 39% lower than the industry average of 15.49x.
In the first quarter ended March 31, 2022, BMY’s net sales have increased 4.7% year-over-year to $11.31 billion, while its total revenues increased 5.2% from the same period last year to $11.65 billion.
Non-GAAP gross profit and non-GAAP EPS improved 6.7% and 12.6% from the prior-year quarter to $9.23 billion and $1.96, respectively. BMY’s revenue has grown at a CAGR of 26.3% over the past three years and a CAGR of 18.7% over the past five years. Its EBITDA has grown at a 42.5% CAGR over the past three years.
Analysts expect BMY’s revenue for the fiscal year 2023 to be $48.36 billion, indicating a 4.3% year-over-year growth. The company’s EPS is expected to increase 8% from the prior year to $8.16 for the same fiscal year. BMY has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
BMY has gained 11% over the past year and 18.3% year-to-date to close Friday’s trading session at $73.77. However, it has declined 2.9% over the past month.
It is no surprise that BMY has an overall rating of A, which translates to Strong Buy in our POWR Rating system. BMY has an A grade for Value and a B for Growth and Quality. In the Medical -Pharmaceuticals industry, it is ranked #5.
Beyond what we’ve stated above, we have also given BMY grades for Momentum, Stability, and Sentiment. Get all the BMY ratings here.
Bayer Aktiengesellschaft (BAYRY)
BAYRY is a life-sciences company that operates in Pharmaceuticals; Consumer Health; and Crop Science segments. The company distributes its offerings through wholesalers, pharmacies and pharmacy chains, supermarkets, online and other retailers, hospitals, and directly to farmers. It is headquartered in Leverkusen, Germany.
In June, the company announced that its subsidiary BlueRock Therapeutics LP had established a new site for cell therapy innovation on the company’s Berlin-based campus. This move is part of the company’s plan to advance cell therapies.
In April, BAYRY announced an agreement under which Ginkgo Bioworks Holdings, Inc. (DNA) is expected to acquire BAYRY’s West Sacramento Biologics Research & Development (R&D) site and internal discovery and lead optimization platform. The company’s work with DNA is expected to accelerate the biological pipeline of BAYRY’s Crop Science Division.
In terms of its forward non-GAAP P/E, BAYRY is currently trading at 8.49x, 53.1% lower than the industry average of 18.10x. Its forward EV/Sales multiple of 2.03 is 39.8% lower than the industry average of 3.36.
For the first quarter ended March 31, BAYRY’s net sales increased 18.7% year-over-year to €14.64 billion ($15.36 billion). Its net income rose 57.5% from the year-ago value to €3.29 billion ($3.45 billion).
Gross profit improved 24% from the prior-year period to €9.46 billion ($9.93 billion). BAYRY’s net income has grown at a CAGR of 30.9% over the past three years, while its EPS has grown at a CAGR of 57.5% over the same period.
Street EPS estimate for the fiscal year 2022 of $1.94 indicates a 6.4% year-over-year improvement. Street revenue estimate for the same year of $50.55 billion reflects a rise of 3.1% year-over-year. BAYRY has beaten consensus EPS estimates in each of the trailing four quarters.
Over the past year, BAYRY’s stock has gained 4.9% and 24.4% year-to-date to close Friday’s trading session at $16.50. On the other hand, the stock has declined 1.9% over the past month.
BAYRY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our POWR Rating system. BAYRY has an A grade for Growth and Value. It is also rated a B for Stability.
Among the Medical-Pharmaceuticals industry, it is ranked #7. Click here for the additional POWR Ratings for BAYRY (Quality, Sentiment, and Momentum).
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MRK shares were trading at $84.62 per share on Monday afternoon, down $0.27 (-0.32%). Year-to-date, MRK has gained 12.31%, versus a -22.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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