The pharmaceutical industry is expected to thrive as demand increases and technology advances. Therefore, fundamentally sound top-rated pharma stocks Zoetis Inc. (ZTS), AstraZeneca PLC (AZN), and Taro Pharmaceutical Industries Ltd. (TARO) could be wise portfolio additions.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the pharma industry.
According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 6.2% to reach $1.47 trillion by 2028. Oncology Drugs is the industry’s largest segment, with a forecast market volume of $214.10 billion in 2024.
The global pharma 4.0 market is expected to reach $63.17 billion by 2032, increasing at an 18% CAGR. This growth can be attributed to the increasing adoption of advanced technologies such as artificial intelligence, big data analytics, and robotics in the pharmaceutical industry. These technologies are revolutionizing drug discovery, manufacturing processes, and patient care, leading to improved efficiency and effectiveness in the sector.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from iShares U.S. Pharmaceutical ETF’s (IHE) 6.4% returns over the past month.
Considering these conducive trends, let’s take a look at the fundamentals of the three above-mentioned Medical – Pharmaceuticals stocks, starting with the third stock.
Stock #3: Zoetis Inc. (ZTS)
ZTS is a leading global animal health company specializing in medicines, vaccines, and diagnostics for livestock and companion animals. The company caters to veterinarians, livestock producers, and pet owners worldwide, aiming to improve the health and well-being of animals.
ZTS’ trailing-12-month levered FCF margin of 13.75% is significantly higher than the industry average of 0.29%. Its trailing-12-month EBIT margin of 36.53% is significantly higher than the industry average of 0.90%.
For the third quarter, which ended September 30, 2023, ZTS’ revenue and non-GAAP gross profit grew 7.4% and 8.5% year-over-year to $2.15 billion and $1.52 billion, respectively. Moreover, its non-GAAP net income attributable to ZTS and EPS amounted to $629 million and $1.36, up 11.1% and 12.4% from the previous year’s quarter, respectively.
Street expects ZTS’ revenue to increase 8% year-over-year to $9.20 billion for the year ending December 2024. Its EPS is expected to grow 11.4% year-over-year to $6.03 for the same period. It surpassed EPS estimates in three of four trailing quarters. Shares of ZTS have gained 33.2% over the past year to close the last trading session at $197.37.
ZTS’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ZTS also has a B grade for Growth, Stability, Sentiment and Quality. It is ranked #10 out of 156 stocks in the Medical - Pharmaceuticals industry. Click here for the additional POWR Ratings for Value and Momentum for ZTS.
Stock #2: AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN is a renowned biopharmaceutical company focusing on discovering, developing, manufacturing, and commercializing prescription medicines. Its marketed products treat oncology, covid-19, respiratory, cardiovascular, renal, and metabolism diseases, etc.
AZN’s forward non-GAAP P/E of 18.21x is 4.8% lower than the industry average of 19.13x. Its forward non-GAAP PEG of 1.47x is 31.5% lower than the industry average of 2.15x.
AZN’s trailing-12-month EBITDA margin of 41.57% is 669.2% higher than the 5.41% industry average. Its trailing-12-month asset turnover ratio of 0.47x is 21.7% higher than the 0.39x industry average.
AZN’s total revenues increased 4.6% year-over-year to $11.49 billion for the third quarter (ended September 30, 2023), while its operating profit grew 56.9% from the year-ago value to $1.95 billion. The company’s profit after tax and EPS came in at $1.38 billion and $0.89.
The consensus revenue came in at $50.35 billion for the fiscal year ending December 2024 represents a 10.1% increase year-over-year. Its EPS is expected to grow 16.3% year-over-year to $4.30 for the same year. It surpassed EPS estimates in three of four trailing quarters. AZN’s shares have gained 5% past month to close the last trading session at $67.35.
AZN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #7 in the same industry. It has an A grade for Value and a B for Value, Stability, Sentiment and Quality. To see additional AZN’s ratings for Momentum, click here.
Stock #1: Taro Pharmaceutical Industries Ltd. (TARO)
Based in Haifa, Israel, TARO develops, manufactures, and markets prescription and over-the-counter pharmaceutical products in the United States, Canada, Israel, and internationally. It offers its products for various therapeutic categories comprising allergy, analgesic, antibacterial, anti-inflammatory, anti-cancer, etc.
TARO’s forward EV/Sales of 0.44x is 87.9% lower than the industry average of 3.68x. Its forward Price/Sales of 2.54x is 38.6% lower than the industry average of 4.14x.
TARO’s trailing-12-month levered FCF margin of 13.07% is significantly higher than the industry average of 0.29%. Its trailing-12-month EBIT margin of 1.24% is 37.5% higher than the industry average of 0.90%.
During the fiscal second quarter which ended September 30, 2023, TARO’s net sales increased 13.6% year-over-year to $148.20 million. Its gross profit rose 56.7% from the previous-year quarter to $73.60 million.
The company’s net income amounted to $8.55 million and $0.23 per share, compared to a net loss of $2.81 million and $0.07 per share in the year-ago quarter.
Street expects TARO’s revenue to increase 7.9% year-over-year to $618.07 million for the year ending March 2024. Its EPS is expected to grow 61.8% year-over-year to $1.10 for the same period. The stock has gained 41.9% over the past year to close the last trading session at $41.78.
It’s no surprise that TARO has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and Sentiment and a B for Growth and Stability. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated TARO for Momentum and Quality. Get all TARO ratings here.
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AZN shares were trading at $68.17 per share on Tuesday morning, up $0.82 (+1.22%). Year-to-date, AZN has gained 1.22%, versus a -0.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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