The healthcare industry is poised to grow significantly in the coming years. Moreover, as healthcare stocks tend to perform relatively well despite macro uncertainties due to inelastic demand for their products and services, high-flying pharma stocks Novo Nordisk (NVO), AbbVie (ABBV), and Merck & Co (MRK) might be ideal investments now. Continue reading.
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The need for accurate medical diagnoses has increased amid the rising number of chronic disease-affected patients globally. With the use of cutting-edge digital platforms, big data analytics, cloud computing, and artificial intelligence (AI), the sector is undergoing a transition.
In 2022, it was noted that there had been an increase in alliances and collaborations between major pharmaceutical companies and suppliers of AI technology. The pharmaceutical sector has grown rapidly in recent years and is anticipated to reach $1.50 trillion by 2023.
On top of it, the resurgence of COVID-19 in China might be significantly beneficial for the industry. Over the past three months, China has detected over 130 sublineages of Omicron. Health experts have warned that there is no biological reason for the virus to become milder over time and that severe disease may continue to spread.
Amid a gloomy economic outlook and ongoing macro headwinds, healthcare stocks seem appealing to investors as they tend to weather turbulent times relatively well due to inelastic demand for healthcare products and services.
Hence, pharma stocks Novo Nordisk A/S (NVO), AbbVie Inc. (ABBV), and Merck & Co., Inc. (MRK), which have registered steady gains over the past months, might be solid buys now.
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a healthcare company that engages in researching, developing, manufacturing, and marketing pharmaceutical products worldwide. It operates in two segments Diabetes and Obesity care and Biopharm.
On November 14, NVO completed the acquisition of Forma Therapeutics Holdings, Inc. (Forma), which was announced on 1 September 2022. At the completion of the merger, Forma became a wholly-owned subsidiary of NVO. The acquisition might help the company expand its presence in newer markets.
On September 12, NVO and Microsoft Corp. (MSFT) entered a new strategic collaboration to combine MSFT’s computational services, cloud, and artificial intelligence (AI) technology, and expertise with NVO’s drug discovery, development, and data science capabilities to accelerate the company’s R&D.
Lars Fogh Iversen, senior vice president, Digital Science & Innovation at NVO, said, “Together, we are on a path to enable faster and scaled use of AI in drug discovery, ultimately leading to more breakthrough innovations and efficiency gain to better serve the needs of patients.”
The company has a four-year average yield of 1.87%. Its annual dividend of $1.16 yields 0.85% on current market prices. NVO has raised its dividend payouts at CAGRs of 9.3% and 6.9% over the past three and five years, respectively.
NVO’s net sales increased 25.8% year-over-year to DKK128.86 billion ($18.45 billion) in the nine months ended September 30, 2022. Its operating profit grew 28.2% year-over-year to DKK57.72 billion ($8.26 billion), while its net profit rose 13.7% from its year-ago quarter to DKK41.93 billion ($6 billion). Similarly, the company’s EPS improved by 15.3% year-over-year to DKK18.42.
NVO’s revenue is expected to rise 17.9% from the last year to $25.23 billion in the current fiscal year ending December 2022. Its EPS is expected to increase 12.4% year-over-year to $3.54 in the current year. Moreover, the stock has surpassed its revenue estimates in three of the trailing four quarters.
NVO’s shares have gained 34.7% over the past three months to close the last trading session at $135.20.
NVO’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NVO also has an A grade in Quality and a B in Value and Stability. The company is ranked at the top of the 160 stocks in the Medical – Pharmaceuticals industry.
To access additional NVO ratings for Growth and Momentum, click here.
AbbVie Inc. (ABBV)
ABBV is a research-based biopharmaceutical company that develops, manufactures, and sells pharmaceuticals worldwide. The company’s product offerings include HUMIRA, SKYRIZI, and RINVOQ.
On December 16, ABBV announced that the U.S. Food and Drug Administration (FDA) approved VRAYLAR (cariprazine) as an adjunctive therapy to antidepressants for treating the major depressive disorder in adults. This should be a significant achievement for the company.
On December 6, ABBV and HotSpot Therapeutics, Inc., a biotechnology company, announced an exclusive collaboration and option to license agreement for HotSpot’s discovery-stage IRF5 program for the autoimmune disease treatment. The partnership with HotSpot will further strengthen ABBV’s robust immunology pipeline.
On October 28, ABBV declared its quarterly dividend of $1.48 per share, reflecting an increase of approximately 5%, payable to shareholders on February 15, 2023.
Its annual dividend of $5.92 per share translates to a 3.64% yield on the current price. Its dividend payouts have grown at a CAGR of 9.6% and 17.3% over the past three years and five years, respectively. Its four-year average dividend yield is 4.63%. The company has hiked its dividend for the last nine consecutive years.
ABBV’s net revenues increased 3.3% year-over-year to $14.81 billion in the fiscal third quarter that ended September 30, 2022. The company’s operating income amounted to $4.60 billion, up 6.9% year-over-year. Its adjusted after-tax earnings increased 29.1% year-over-year to $6.53 billion. Also, its adjusted EPS grew 29.3% year-over-year to $3.66.
Analysts expect ABBV’s revenue to come in at $58.30 billion in the current fiscal year ending December 2022, indicating an increase of 3.9% year-over-year. Its EPS is estimated to rise 9% year-over-year to $13.84 in the current year. The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 20.1% over the past year, closing the last trading session at $162.56. It has gained 13.9% over the past three years.
ABBV’s promising outlook is reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our rating system. ABBV has an A grade for Quality and a B for Growth. It is ranked #12 in the same industry.
Beyond what has been stated above, we’ve also rated ABBV for Value, Momentum, Sentiment, and Stability. Get all POWR Ratings of ABBV.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company that offers solutions through its prescription medicines, vaccines, biological therapies, and animal health products. The company operates in the Pharmaceutical and Animal Health segments.
On December 22, MRK and Kelun-Biotech (a holding subsidiary of Sichuan Kelun Pharmaceutical Co., Ltd) announced that the companies have entered into an exclusive license and collaboration agreement to develop seven investigational preclinical antibody-drug conjugates for the treatment of cancer.
Under the agreement, Kelun-Biotech has granted Merck exclusive global licenses to research, develop, manufacture and commercialize multiple investigational preclinical ADC therapies and exclusive options to obtain additional licenses for ADC candidates.
On December 12, MRK announced that it had commenced a cash tender offer to purchase all outstanding shares of common stock of Imago BioSciences, Inc. (IMGO). The company had earlier announced that it had entered into a definitive agreement to acquire Imago. The transaction is expected to close in the first quarter of 2023 and might be strategically beneficial to MRK.
MRK’s annual dividend of $2.92 yields 2.63% on the current share price. The company’s dividend payouts have increased at a 9.1% CAGR over the past three years and a 9.2% CAGR over the past five years. Its four-year average yield came in at 2.95%.
MRK’s sales increased 13.7% year-over-year to $14.96 billion during the third quarter ended September 30, 2022. The company’s non-GAAP net income rose 3.9% year-over-year to $4.70 billion. Its non-GAAP EPS came in at $1.85, representing an increase of 3.9% year-over-year.
Street expects MRK’s revenue to increase 21.3% year-over-year to $59.10 billion in the current fiscal year ending December 2022. Its EPS for the current year is expected to increase 22.8% year-over-year to $7.39. The company has a remarkable earnings history, as it has surpassed its revenue and EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 44% to close the last trading session at $110.82.
It is no surprise that the stock has an overall rating of A, equating to Strong Buy in our rating system. MRK has a B grade for Value, Sentiment, and Quality. It is ranked #10 in the same industry.
Click here to see other ratings of MRK for Growth, Momentum, and Stability.
NVO shares rose $0.50 (+0.37%) in premarket trading Friday. Year-to-date, NVO has gained 22.00%, versus a -17.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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