The pharmaceutical industry is expected to grow rapidly due to rising global medical needs, an aging population, the prevalence of chronic diseases, innovative treatments, personalized medicine, and expanding healthcare access in emerging markets.
Given the industry’s growth prospects, investors could consider buying fundamentally sound pharma stocks Spero Therapeutics, Inc. (SPRO), Astellas Pharma Inc. (ALPMY) and Supernus Pharmaceuticals, Inc. (SUPN) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the pharma industry.
The global digital health industry is expected to reach $549.7 billion by 2028, expanding at a 25% CAGR. This expansion can be ascribed to a variety of factors, including increased adoption of digital health solutions by healthcare practitioners and patients. Also, technological breakthroughs such as artificial intelligence and wearable devices are propelling the digital health market forward.
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 market, with expected market volume of $188.20 billion in 2023.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from iShares U.S. Pharmaceutical ETF’s (IHE) 6.6% returns over the past nine months.
Considering these conducive trends, let’s look at the fundamentals of the three Medical – Pharmaceuticals stock picks, beginning with number 3.
Stock #3: Spero Therapeutics, Inc. (SPRO)
SPRO is a clinical-stage biopharmaceutical company that focuses on identifying, developing, and commercializing novel treatments for multi-drug resistant (MDR) bacterial infections and rare diseases in the United States
SPRO’s forward Price/Sales of 1.26x is 68.8% lower than the industry average of 4.03x.
SPRO’s trailing-12-month asset turnover ratio of 0.91x is 132.5% higher than the 0.39x industry average. Its trailing-12-month levered FCF margin of 17.33% is significantly higher than the 0.29% industry average.
SPRO’s total revenues for the fiscal third quarter that ended September 30, 2023, increased significantly year-over-year to $25.47 million. Also, net loss decreased 72.5% year-over-year to $3.21 million and net loss per share attributable to common shareholders per share decreased 81.8% year-over-year to $0.06.
Street expects SPRO’s revenue to increase 16% year-over-year to $66 million for the year ending December 2024. Shares of SPRO has gained 11.6% over the past three months to close the last trading session at $1.35.
SPRO’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 assess stocks by 118 different factors, each with its own weighting.
SPRO also has an A grade for Value and a B for Quality. It is ranked #31 out of 156 stocks in the Medical – Pharmaceuticals industry. Click here to see the additional POWR Ratings for Growth, Stability, Momentum and Sentiment for SPRO.
Stock #2: Astellas Pharma Inc. (ALPMY)
Based in Tokyo, Japan, ALPMY is a global pharmaceutical company engaged in the manufacturing, marketing, and international trade of pharmaceuticals. The company’s portfolio includes treatments for prostate cancer, acute myeloid leukaemia, metastatic urothelial cancer, and anaemia related to chronic kidney disease.
ALPMY’s forward EV/Sales of 2.24x is 38.9% lower than the industry average of 3.67x. Its forward Price/Sales of 1.91x is 52.7% lower than the industry average of 4.03x.
ALPMY’s trailing-12-month levered FCF margin of 0.96% is 225.6% higher than the industry average of 0.29%. Its trailing-12-month EBIT margin of 10.21% is significantly higher than the industry average of 0.81%.
For the six months ended September 30, 2023, ALPMY’s revenue and gross profit grew marginally and 2.2% from the prior-year quarter to ¥767.14 billion ($5.21 billion) and ¥623.78 billion ($4.24 billion), respectively.
The company reported total assets of ¥3.54 trillion ($24.06 billion) as of September 30, 2023, compared to total assets of ¥2.46 trillion ($16.68 billion) as of March 31, 2023. Moreover, its cash and cash equivalents at the end of the period stood at ¥333.99 billion ($2.27 billion).
The consensus revenue estimate of $11.04 billion for the year ending March 2024 represents a 140.9% increase year-over-year. Its EPS is expected to came in at $0.32 for the same period. ALPMY’s shares have lost 3.4% over the past month to close the last trading session at $11.72.
ALMPY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #30 in the same industry. It has an A grade for Stability and a B for Value and Quality. To see additional ALMPY’s ratings for Growth, Momentum and Sentiment, click here.
Stock #1: Supernus Pharmaceuticals, Inc. (SUPN)
SUPN focuses on developing and selling treatments for central nervous system diseases in the United States. Its products include medications for epilepsy, migraine, ADHD, and Parkinson’s Disease, with ongoing clinical trials for new candidates. The company distributes its products through various channels.
SUPN’s forward non-GAAP P/E of 13.33x is 30.4% lower than the industry average of 19.16x. Its forward Price/Sales of 2.66x is 34% lower than the industry average of 4.03x.
SUPN’s trailing-12-month EBIT margin of 4.31% is 431.7% higher than the 0.81% industry average. Its trailing-12-month levered FCF margin of 17.56% is significantly higher than the 0.29% industry average.
During the third quarter ended September 30, 2023, SUPN reported non-GAAP total revenues of $133.30 million, up 23.7% year-over-year. The company’s adjusted operating earnings grew 46.9% from the previous year’s quarter to $37.30 million. Its total net product sales stood at $149 million. As of September 30, 2023, the company’s total assets amounted to $1.29 billion.
Analysts expect SUPN’s revenue to grow 15.6% year-over-year to $156.70 million for the second quarter ending June 2024. Its EPS is expected to be $0.45 for the same quarter. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 6.6% over the past month to close the last trading session at $29.23.
It’s no surprise that SUPN has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality. It is ranked #29 in the same industry.
Beyond what is stated above, we’ve also rated SUPN for Sentiment, Stability, Growth and Momentum. Get all SUPN ratings here.
What To Do Next?
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SPRO shares were trading at $1.38 per share on Tuesday morning, up $0.03 (+2.22%). Year-to-date, SPRO has declined -20.23%, versus a 26.08% 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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