The pharmaceutical industry is well-positioned for growth, given its robust demand, increasing healthcare spending and rising global elderly population. So, investors could consider adding quality pharma stocks Dr. Reddy’s Laboratories Limited (RDY), Novo Nordisk A/S (NVO), and AbbVie Inc. (ABBV) to one’s portfolio this month.
The pharmaceutical market is experiencing robust growth driven by innovative drugs and increasing healthcare demand, especially in emerging nations. This year, the global pharmaceutical market is poised to achieve revenues of $1.12 trillion. Looking to the future, the global pharmaceutical market is expected to reach $1.48 trillion by 2028, exhibiting a CAGR of 5.8%.
Moreover, the pharmaceutical sector is exceptionally stable due to consistent demand for medicines, regardless of economic conditions. Its growth is driven by increased chronic diseases, growing health awareness, and higher investments in research and development (R&D).
In addition, worldwide expenditures on medications are seeing a notable uptick. A report by the IQVIA Institute for Human Data Science predicts that global spending on medicines will increase to approximately $1.9 trillion by 2027.
This growth is expected to be at a rate of 3-6% propelled by the introduction of new drugs and expanded usage of recently launched brands.
Besides, Moody's has forecasted a steady outlook for the pharmaceutical sector over the coming year. This outlook is underpinned by positive factors such as solid sales of blockbuster drugs, expansion in the obesity drug market, and heightened demand for COVID-19 vaccines. Moody's also anticipates a 2-4% increase in earnings, primarily attributed to the sale of drugs targeting cancer, autoimmune diseases, and diabetes/obesity.
Furthermore, AI is reshaping the pharmaceutical sector by revolutionizing drug discovery, enhancing manufacturing processes and fostering strategic partnerships. Pharmaceutical companies are not only focusing on innovation to strengthen their patent portfolios but are also making strategic investments in AI.
Considering these conducive trends, let’s analyze the fundamentals of the three Medical – Pharmaceuticals industry picks, beginning with the third choice.
Stock #3: Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is an integrated pharmaceutical company worldwide. It operates through Global Generics; Pharmaceutical Services and Active Ingredients; and other segments.
On August 10, 2023, RDY announced the launch of Saxagliptin and Metformin Hydrochloride Extended-Release Tablets in the U.S. market. These tablets are a therapeutic equivalent generic version of KOMBIGLYZE XR, approved by the U.S. Food and Drug Administration (USFDA). This generic version of KOMBIGLYZE XR will help RDY generate solid sales in the U.S.
The company pays an annual dividend of $0.48, which translates to a yield of 0.74% on the prevailing price level, higher than its four-year average dividend yield of 0.60%. The company has raised its dividend payouts at a CAGR of 13.1% over the past three years.
RDY’s revenues for the fiscal second quarter that ended September 30, 2023, increased 9.1% year-over-year to $828 million. Its gross profit rose 8.5% year-over-year to $486 million. The company’s profit for the period increased 32.8% from the prior-year quarter to $178 million. Moreover, its EPS rose 32.1% year-over-year to $1.07.
Street expects RDY’s revenue and EPS for the fiscal fourth quarter ending March 2024 to increase 4.5% and 2.9% year-over-year to $805.31 million and $0.75. Also, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock gained 26.6% year-to-date to close the last trading session at $65.50. It has returned 17.5% over the past year.
RDY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Within the three Medical – Pharmaceuticals industry, it is ranked #11.
To see RDY’s ratings for Momentum, click here.
Stock #2: Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the research, development, manufacture, and marketing of pharmaceutical products worldwide. The company operates in two segments: Diabetes and Obesity care; and Biopharm.
On November 1, NVO announced that it had closed the previously announced share repurchase program in compliance with European regulations. Under this program, the company aimed to repurchase B shares for up to DKK 5.7 billion ($806.24 million) from August 10, 2023, to October 31, 2023.
On October 16, 2023, NVO announced its agreement to acquire ocedurenone, a potential treatment for uncontrolled hypertension and kidney disease, from KBP Biosciences for up to $1.3 billion. This drug has promising potential in addressing uncontrolled hypertension, a leading risk factor for cardiovascular and kidney diseases.
NVO is primarily known for its focus on diabetes care, but this acquisition could diversify its product portfolio into cardiovascular and kidney disease management. This expansion may help the company address a broader range of chronic diseases, potentially increasing its market reach and revenue streams.
The company pays an annual dividend of $0.88, which yields 0.90%. Its four-year average dividend yield is 1.57%. The company’s dividend payouts have increased at 16.5% CAGR over the past three years.
NVO’s net sales for the fiscal third quarter ended September 30, 2023, increased 28.9% from the year-ago quarter to DKK58.73 billion ($8.31 billion). Its gross profit increased 27.8% year-over-year to DKK49.02 billion ($6.93 billion). The company’s net profit rose 56% from the year-ago quarter to DKK22.48 billion ($3.18 billion).
The company revised its sales and operating profit growth outlook in the last month. The growth at constant exchange rates (CER) is now projected to be 32-38% and 40-46%, respectively.
Analysts expect NVO’s EPS and revenue for the quarter ending December 2023 to increase 42.9% and 23.3% year-over-year to $0.64 and $8.75 billion, respectively. The company has surpassed the revenue estimates in three of the trailing four quarters.
Over the past year, the stock has gained 83.6% to close the last trading session at $97.68. It has soared 40.5% over the past nine months.
NVO’s POWR Ratings reflect strong prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary system.
It has an A grade for Quality and a B for Sentiment. Within the same industry, it is ranked #9.
Click here to see NVO’s Growth, Value, Momentum, and Stability ratings.
Stock #1: AbbVie Inc. (ABBV)
ABBV is a global biopharmaceutical firm focused on research, development, manufacturing, and the sale of pharmaceuticals. Some of the products in its portfolio are HUMIRA, SKYRIZI, and RINVOQ.
On October 30, ABBV entered into a supply agreement with NEXGEL, Inc.’s subsidiary, CG Converting and Packaging, to supply gel pads to be used with ABBV's Rapid Acoustic Pulse device being investigated for improvement in the appearance of cellulite.
On October 27, ABBV announced a raise in its quarterly cash dividend, increasing it from $1.48 per share to $1.55 per share, effective for the dividend payable on February 15, 2024. This marks a 4.7% increase and reflects ABBV's ongoing commitment to growing dividends.
With a four-year average dividend yield of 4.32%, the company pays $6.20 annually as dividends, translating to a 4.35% yield on the current market price.
Since its establishment in 2013, ABBV has boosted its quarterly dividend by over 285%. The company is also a member of the S&P Dividend Aristocrats Index, signifying its consistent annual dividend increases for at least 25 years.
ABBV’s net revenues stood at $13.93 billion for the fiscal third quarter that ended September 30, 2023. Its operating earnings increased reached $2.28 billion. Non-GAAP net earnings amounted to $5.25 billion and $2.95 per share.
The company increased its 2023 adjusted EPS guidance range from $10.86 - $11.06 to $11.19 - $11.23.
The company’s EPS and revenue are expected to reach $11.16 and $53.88 billion in the fiscal year 2023. It has a remarkable earnings surprise history, surpassing EPS estimates in three of the trailing four quarters.
ABBV’s shares rose marginally, closing the last trading session at $142.47.
It is no surprise that ABBV has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
ABBV has an A grade for Quality and a B for Value, Stability, and Sentiment. It is ranked #1 within the same industry.
Beyond what has been stated above, we’ve also rated ABBV for Growth and Momentum. Access all POWR Ratings of ABBV here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NVO shares were trading at $101.29 per share on Thursday morning, up $3.61 (+3.70%). Year-to-date, NVO has gained 50.79%, versus a 13.03% 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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