The solid pace of technological developments in the healthcare industry has fuelled digital healthcare practices, cybersecurity, patient data transparency, remote patient monitoring (RPM), and various customer-centric and operational enhancements. Healthcare players are constantly expanding digital health, and this sector has become a hotbed for investors. According to McKinsey, investments in U.S. digital therapeutics companies have increased by approximately 40% a year over the past seven years.
With one in four U.S. adults suffering from a chronic disease, this industry is expected to keep growing as the population swells. The global pharmaceuticals market is expected to reach $2.14 trillion in 2026 growing at a CAGR of 7.7%, while health spending is expected to balloon from $4 trillion in 2020 to $8.30 trillion by 2040.
The market turbulence has led several pharma stocks to slump significantly in price this year. However, we think financially robust mega-cap stocks, Merck & Co., Inc. (MRK), Roche Holding AG (RHHBY), and AbbVie Inc. (ABBV), which currently seems to be trading at a discount, could be ideal buy and hold options.
Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide through two segments, Pharmaceutical and Animal Health. It has a market cap of $213.68 billion.
On June 13, MRK announced that the U.S. FDA has accepted for review a new supplemental Biologics License Application (sBLA) seeking approval for KEYTRUDA for the adjuvant treatment of patients with stage IB (≥4 centimeters), II or IIIA non-small cell lung cancer (NSCLC) following complete surgical resection. If approved, KEYTRUDA would be the first adjuvant immunotherapy-based option in the U.S. “The acceptance of our application demonstrates the progress we are making in earlier lines and earlier stages of certain cancers across our oncology portfolio,” said Dr. Eliav Barr, senior VP, head of global clinical development, and chief medical officer of Merck Research Laboratories.
MRK’s sales increased 49.6% from the prior-year quarter to $15.90 billion in the fiscal first quarter ended March 31, 2022. Its net income came in at $4.31 billion, reflecting an increase of 57% year-over-year, while its EPS stood at $1.70, up 57.4% year-over-year.
MRK’s revenue for the fiscal quarter ending June 2022 is expected to come in at $13.60 billion, indicating a 19.3% year-over-year growth. The company’s EPS is expected to increase 28.9% from the year-ago value to $1.69. MRK also beat the consensus EPS estimates in three of the trailing four quarters.
In terms of its forward Price/Sales, MRK is currently trading at 3.69x, 9.5% lower than the industry average of 4.08x. Its forward EV/EBITDA multiple of 9.89 is 21.3% lower than the industry average of 12.6.
MRK’s stock has gained 12% over the past year and 10.3% year-to-date to close its last trading session at $84.50.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The company also has an A grade in Growth and a B in Stability, Sentiment, Value, and Quality. It is ranked #1 of 168 stocks in the Medical – Pharmaceuticals industry. To get MRK’s ratings for Momentum, click here.
Roche Holding AG (RHHBY)
RHHBY is a Switzerland-based healthcare company. The company’s operating businesses are organized into two divisions: Pharmaceuticals and Diagnostics. The Pharmaceuticals division consists of two business segments, Roche Pharmaceuticals; and Chugai, while the Diagnostics division consists of four business segments Diabetes Care; Molecular Diagnostics; Professional Diagnostics; and Tissue Diagnostics. The company has a market capitalization of $271.63 billion.
On June 9, RHHBY announced that the U.S. FDA had approved Foundation Medicine’s FoundationOne®CDx as a companion diagnostic (CDx) for Roche’s Rozlytrek® (entrectinib). FoundationOne CDx can now be used to identify patients with ROS1 fusion-positive non-small cell lung cancer or patients with NTRK fusion-positive solid tumours for whom treatment with Rozlytrek may be appropriate. This approval marks the first and only companion diagnostic indication for Rozlytrek and an important milestone in tumor-agnostic approaches for people living with rare cancers.
The company also announced that the European Commission had approved Tecentriq® (atezolizumab) as an adjuvant treatment for adults with non-small cell lung cancer (NSCLC) with a high risk of recurrence. In the Phase III trial, adjuvant Tecentriq reduced the risk of disease recurrence or death by 57%, compared with best supportive care. Tecentriq is now the first and only cancer immunotherapy available for people with early-stage NSCLC in Europe, marking a milestone development for the company.
RHHBY’s group sales increased 10.1% year-over-year to CHF16.45 billion ($16.49 billion) in the fiscal quarter ended March 31, 2022, while its sales from the pharmaceuticals division improved 5.3% year-over-year to CHF11.16 billion ($11.19 billion).
The consensus revenue estimate of $64.48 billion for the fiscal year ending December 2023 represents a 1.2% improvement year-over-year. The EPS estimate of $2.81 for the same period represents a 7.5% increase year-over-year. The company topped Street EPS estimates in each of the trailing four quarters.
In terms of its forward P/E, RHHBY is currently trading at 13.78x, 43.5% lower than the industry average of 24.36x. Its forward EV/EBITDA multiple of 9.89 is 21.3% lower than the industry average of 12.6.
RHHBY has slumped 3.8% over the past month to close the last trading session at $38.21.
RHHBY’s POWR Ratings reflect this promising outlook. The company has an overall B rating, translating to Buy in our proprietary rating system.
RHHBY also has a B grade in Stability, Value, and Quality. It is ranked #18 in the same industry. To see additional POWR Ratings for Momentum, Growth, and Sentiment for RHHBY, click here.
AbbVie Inc. (ABBV)
With a market capitalization of $243.19 billion, ABBV is a research-based biopharmaceutical company engaged in the research and development, manufacturing, commercialization, and sale of medicines and therapies.
This month, ABBV announced primary results from the large B-cell lymphoma (LBCL) expansion cohort in the EPCORE™ NHL-1 phase 2 clinical trial evaluating epcoritamab (DuoBody®-CD3xCD20), an investigational subcutaneous bispecific antibody. The result showed clinically meaningful efficacy with durable response in patients.
The company also announced new data from Cohort 3 of its Phase 2 REFINE study of investigational navitoclax in combination with ruxolitinib in JAK inhibitor naïve patients with myelofibrosis (MF), a rare and difficult to treat blood cancer. The preliminary findings showed spleen volume and symptomatic improvement in this cohort, which is expected to help the company further explore avenues for disease modification and treatment.
ABBV’s net revenues increased 4.1% from the prior-year quarter to $13.54 billion in the fiscal first quarter of 2022. Operating earnings for the quarter came in at $4.72 billion, reflecting an increase of 15% year-over-year, while the net earnings attributable to ABBV stood at $4.49 billion, up 26.4% year-over-year. The company’s EPS increased 26.1% year-over-year to $2.51.
The consensus EPS estimate of $3.43 for the fiscal second quarter ending June 2022 represents a 10.4% improvement year-over-year. The consensus revenue estimate of $14.7 billion for the same quarter represents a 4.9% increase from the same period last year. It has an impressive earnings surprise history, as it topped Street EPS estimates in each of the trailing four quarters.
In terms of its forward EV/EBITDA, ABBV is currently trading at 9.85x, 21.6% lower than the industry average of 12.56x. Its forward Price/Cash Flow multiple of 9.66 is 37% lower than the industry average of 15.34.
Over the past year, the stock has gained 19.3% and 29.2% over the past nine months. It closed the last trading session at $137.62.
It is no surprise that ABBV has an overall rating of A, equating to Strong Buy in our POWR Ratings system. ABBV also has an A grade in Quality and a B in Growth and Value. The stock is ranked #7 in the Medical – Pharmaceuticals industry.
In addition to the POWR Rating grades I’ve just highlighted, you can see the ABBV’s ratings for Momentum, Stability, and Sentiment here.
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MRK shares were trading at $83.67 per share on Thursday morning, down $0.96 (-1.13%). Year-to-date, MRK has gained 11.05%, versus a -22.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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