The pharmaceutical industry shows promise as demand for medications keeps growing, fueled by factors like rising chronic illnesses, medical tech advancements, and better healthcare access. Pharma stocks are favored by investors for their steady profits, staying strong even during economic shifts, thanks to constant product demand.
Amid this backdrop, investors could consider buying fundamentally strong pharma stocks: Zoetis Inc. (ZTS), Rigel Pharmaceuticals, Inc. (RIGL), and Kamada Ltd. (KMDA).
Advancements in biomedical science and accessibility, smart pharmaceutical tech are boosting the sector. The demand for cutting-edge therapies like cell and gene therapies, along with regenerative and precision medicines, is further fueling the pharmaceutical industry's growth. Likewise, global medicine spending at list prices has risen by 35% in five years, with a 38% increase expected by 2028.
Consequently, pharmaceutical firms are swiftly integrating AI to optimize biopharma manufacturing, while the adoption of machine learning is poised to have a more significant impact on worldwide drug discovery and digital health technology. Moreover, the pharma sector is delving into extended reality technologies such as VR, AR, and MR for drug development, virtual trials, etc in unprecedented ways.
The global pharmaceutical revenues are expected to reach $1.16 trillion this year and grow at a 6.2% CAGR, reaching $1.47 trillion by 2028.
Considering these conducive trends, let’s take a look at the fundamentals of the three Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #1: Zoetis Inc. (ZTS)
ZTS discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products in the United States and internationally.
In terms of the trailing-12-month EBIT margin, ZTS’ 36.01% is considerably higher than the 1.06% industry average. Likewise, its 17.01% trailing-12-month levered FCF margin is significantly higher than the 1% industry average. Furthermore, its 70.08% trailing-12-month gross profit margin is 23.8% higher than the 56.60% industry average.
ZTS’ revenue for the first quarter that ended March 31, 2024, rose 9.5% year-over-year to $2.19 billion. Its adjusted gross profit increased 9.3% year-over-year to $1.55 billion. Likewise, ZTS’ attributable adjusted net income stood at $634 million, up 4.4% over the prior-year quarter. Moreover, its adjusted EPS attributable to ZTS grew 5.3% from the year-ago value to $1.38.
Street expects ZTS’ EPS and revenue for the quarter ending June 30, 2024, to increase 5.9% and 6.1% year-over-year to $1.49 and $2.31 billion, respectively. Over the past month, the stock gained 12% to close the last trading session at $167.91.
ZTS’ POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #40 out of 161 stocks in the Medical – Pharmaceuticals industry. It has a B grade for Quality. Click here to see ZTS’ Growth, Value, Momentum, Stability, and Sentiment ratings.
Stock #2: Rigel Pharmaceuticals, Inc. (RIGL)
RIGL is a biotechnology company that engages in discovering, developing, and providing therapies that enhance the lives of patients with hematologic disorders and cancer.
On February 22, 2024, RIGL announced acquiring the U.S. rights to GAVRETO (pralsetinib), an FDA-approved targeted therapy for RET fusion-positive metastatic non-small cell lung cancer and advanced or metastatic thyroid cancer, expanding RIGL’s portfolio and leveraging existing infrastructure.
This move expands RIGL’s portfolio in hematology and oncology, adding to their existing offerings and aiming to start selling the product in Q3 2024.
On January 4, 2024, RIGL announced a collaboration with CONNECT for a Phase 2 trial of Olutasidenib in high-grade glioma patients with an IDH1 mutation, aiming to explore its potential and fulfill post-marketing pediatric study requirements.
This collaboration will allow RIGL to leverage CONNECT's expertise in conducting clinical trials and accelerate the development of Olutasidenib for this specific patient population.
In terms of the trailing-12-month levered FCF margin, RIGL’s 15.15% is significantly higher than the 1% industry average. Its 0.95x trailing-12-month asset turnover ratio is 139.3% higher than the 0.40x industry average. Also, its 76% trailing-12-month gross profit margin is 34.3% higher than the 56.60% industry average.
For the fiscal first quarter ended March 31, 2024, RIGL’s total revenues increased 37% year-over-year to $29.53 billion. Its net product sales grew 40.2% from the year-ago value to $26 billion. Moreover, as of March 31, 2024, RIGL’s total assets amounted to $126.52 million, compared to $117.23 million as of March 31, 2023.
For the quarter ending June 30, 2024, RIGL’s revenue is expected to increase 25.3% year-over-year to $33.70 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 22.6% to close the last trading session at $0.98.
RIGL’s POWR Ratings reflect a robust outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. It is ranked #35 in the same industry. To see RIGL’s additional grades for Momentum, Stability, and Sentiment, click here.
Stock #1: Kamada Ltd. (KMDA)
Headquartered in Rehovot, Israel, KMDA manufactures and sells plasma-derived protein therapeutics. Its commercial products include KAMRAB/KEDRAB, CYTOGAM, VARIZIG, WINRHO SDF, HEPAGAM B, GLASSIA, KAMRHO (D) IM, KAMRHO (D) IV, and Echis coloratus and Vipera palaestinae Antiserum.
In terms of the trailing-12-month EBITDA margin, KMDA’s 16.98% is 192.5% higher than the 5.81% industry average. Its 4.96% trailing-12-month Capex / Sales is 36.8% higher than the 3.62% industry average. Likewise, the stock’s 0.45x trailing-12-month asset turnover ratio is 13.7% higher than the 0.40x industry average.
KMDA’s total revenues for the first quarter that ended March 31, 2024, increased 22.9% year-over-year to $37.74 million. Its gross profit rose 41.5% over the prior-year quarter to $16.75 million.
For the same quarter, the company's net income and EPS attributable to equity holders of the company came in at $2.37 million and $0.04, compared to a net loss and loss per share of $1.81 million and $0.04, in the year-ago quarter, respectively.
Analysts expect KMDA’s revenue for the quarter ending June 30, 2024, to increase 4.7% year-over-year to $38.88 million. Its EPS for the same quarter is expected to grow 25% year-over-year to $0.05. Over the past six months, KMDA’s stock has gained 16.3% to close the last trading session at $5.57.
It’s no surprise that KMDA has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Growth, Value, and Sentiment. It is ranked #26 in the Medical – Pharmaceuticals industry. Beyond what we stated above, we also have given KMDA grades for Momentum, Stability, and Quality. Get all the KMDA’s ratings here.
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ZTS shares were trading at $168.97 per share on Tuesday afternoon, up $1.06 (+0.63%). Year-to-date, ZTS has declined -13.95%, versus a 9.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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