Three Pharmaceutical Stocks That May Provide a Dose of Health

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This week, we use AAII’s A+ Investor Stock Grades to provide insight into three pharmaceutical stocks. With demographic trends, rising health care expenditures, and advancements in both diseases and medicine expected to boost the market, should you consider the three stocks of Bristol-Myers Squibb Co. (BMY), Jazz Pharmaceuticals plc (JAZZ) and Viatris Inc. (VTRS)?

Pharmaceutical Stocks Recent News

The pharmaceutical industry is forecast to experience continuous positive growth over the next decade. According to Vision Research Reports, the industry will see a compound annual growth rate (CAGR) of 6.2% through 2033.

The report cites several factors that should lead to growth in the pharmaceutical segments. Demographic trends show an aging population and increased life expectancy, driving higher demand for pharmaceuticals. Health care expenditures are rising in emerging markets, with greater investments in health care infrastructure and pharmaceutical research and development (R&D). In addition, innovations in the discovery and development of drugs are leading to more targeted and effective treatments. Overall, these factors should drive growth in the pharmaceutical market.

Given that the pharmaceutical market is expected to rise from $1.65 trillion in 2024 to $2.83 trillion by 2033, might Bristol-Myers Squibb, Jazz Pharmaceuticals and Viatris gain from the developing trends?

Grading Pharmaceutical Stocks With AAII’s A+ Stock Grades

When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five fundamental factors that research and real-world investment results indicate to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.

Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three pharmaceutical stocks — Bristol-Myers Squibb, Jazz Pharmaceuticals and Viatris — based on their fundamentals.

AAII’s A+ Stock Grade Summary for Three Pharmaceutical Stocks

What the A+ Stock Grades Reveal

Bristol-Myers Squibb Co. (BMY) discovers, develops, licenses, manufactures, markets, distributes and sells biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic and neuroscience diseases. It sells products to wholesalers, distributors, pharmacies, retailers, hospitals, clinics and government agencies. The company was formerly known as Bristol-Myers Co. It was founded in 1887 and is headquartered in Princeton, New Jersey.

Bristol-Myers Squibb has a Momentum Grade of B, based on its Momentum Score of 65. This means that the stock’s momentum has been strong in terms of its weighted relative price strength over the last four quarters. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%. The ranks are 69, 88, 22 and 48, sequentially from the most recent quarter.

Higher-quality stocks possess traits associated with upside potential and reduced downside risk. Bristol-Myers Squibb has a Quality Grade of B, based on a score of 75, which is strong. The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross income to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures. To be assigned a Quality Score, though, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.

The company ranks strongly in terms of its gross income to assets and return on invested capital. Its gross income to assets of 38.4% ranks in the 81st percentile among all U.S.-listed stocks, and its return on invested capital of 80.6% ranks in the 93rd percentile. Bristol-Myers Squibb has an F-Score of 5, compared to the sector median of 3. The F-Score is a number between 0 and 9 that assesses the strength of a company’s financial position. It considers the profitability, leverage, liquidity and operating efficiency of a company. The company also has a buyback yield of 1.4%, above the sector median of –8.5%, which ranks in the 81st percentile.

The components of the Growth Composite Score consider a company’s success in growing sales on a year-over-year and long-term annualized basis and its ability to consistently generate positive cash from its core operations. Bristol-Myers Squibb’s Growth Grade is B, which is strong. The company has generated positive annual cash from operations in the past five consecutive years and has a five-year annualized sales growth rate of 14.8%.

Jazz Pharmaceuticals plc (JAZZ) identifies, develops and commercializes pharmaceutical products for unmet medical needs in the U.S. and internationally. Some of its treatments include Zanidatamab for gastroesophageal adenocarcinoma, Suvecaltamide for Parkinson’s disease tremor, JZP150 for post-traumatic stress disorder, and JZP441 for narcolepsy and other sleep disorders. The company also has licensing and collaboration agreements with other drug development programs. The company was incorporated in 2003 and is headquartered in Dublin, Ireland.

Jazz Pharmaceuticals has a Quality Grade of A, with a score of 88, which is very strong. The company ranks highly in terms of its F-Score and its Z-Score, which measures bankruptcy risk. Its F-Score of 7 ranks in the 85th percentile among all U.S.-listed stocks, and its Z-Score of 6.32 ranks in the 67th percentile. Jazz Pharmaceuticals has a return on assets of 3.9%, above the sector median of –32.3%, and a buyback yield of 2.7%.

Jazz Pharmaceuticals has a Value Grade of B, based on a score of 71, which is good value. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA).

The company ranks in the 27th percentile for its shareholder yield and in the 25th percentile for its enterprise-value-to-EBITDA ratio. The company has a shareholder yield of 2.7% and an enterprise-value-to-EBITDA ratio of 7.8. A lower price-to-free-cash-flow ratio is considered better value, and Jazz Pharmaceuticals’ price-to-free-cash-flow ratio of 6.8 is below the sector median of 24.5. Its price-to-sales ratio is 1.91, which ranks in the 49th percentile.

The company has a Momentum Grade of C, based on its Momentum Score of 57. This means that the stock’s momentum is average in terms of its weighted relative price strength over the last four quarters. The ranks are 75, 55, 38 and 31, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –1.9%, compared to the sector median of –6.2%.

Jazz Pharmaceuticals has a Growth Grade of A, which is very strong. The company ranks in the 80th percentile with its five-year annualized sales growth rate of 15.2%, nearly double the industry average of 9.7%.

Viatris Inc. (VTRS) is a global health care company. The company operates in four segments: developed markets, greater China, JANZ and emerging markets. It offers prescription brand drugs, generic drugs, complex generic drugs, biosimilars and active pharmaceutical ingredients (APIs). The company offers drugs in various therapeutic areas, including noncommunicable and infectious diseases; biosimilars in the areas of oncology, immunology, endocrinology, ophthalmology and dermatology; and APIs for antibacterial, central nervous system agents, antihistamines/antiasthmatics, cardiovascular, antivirals, antidiabetics, antifungals and proton pump inhibitor areas, as well as support services, such as diagnostic clinics, educational seminars and digital tools to help patients better manage their health. The company distributes its products through pharmaceutical wholesalers/distributors, pharmaceutical retailers, institutional pharmacies, mail-order and e-commerce pharmacies, and specialty pharmacies. Viatris was founded in 1961 and is headquartered in Canonsburg, Pennsylvania.

Viatris has a Value Grade of A, based on its Value Score of 93, which is deep value. The company has a price-to-sales sales ratio of 0.95, ranking in the 31st percentile. Its price-to-free-cash-flow ratio is 10.5 and its enterprise-value-to-EBITDA ratio is 6.6, ranking in the 25th and 19th percentiles, respectively. Its price-to-book ratio is 0.70, ranking in the 19th percentile.

Earnings estimate revisions indicate how analysts view a firm’s short-term prospects. Viatris has an Earnings Estimate Revisions Grade of C, based on a score of 49, which is neutral. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.

Viatris reported a positive earnings surprise of 10.7% for the third quarter of 2024. In the prior quarter, it reported a positive earnings surprise of 2.4%. Over the last month, the consensus earnings estimates for fourth-quarter and full-year 2024 have remained unchanged at $0.579 and $2.687 per share, respectively.

Viatris has a Growth Grade of B, which is strong. The company had five-year annualized sales growth rate of 6.2%. It has also generated positive annual cash from operations in the past five consecutive years.

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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.

If you want an edge throughout this market volatility, become an AAII member.

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American Association of Individual Investors
American Association of Individual Investors

Written by American Association of Individual Investors

Since inception in 1978, the nonprofit AAII has helped over 2 million individuals build their investment wealth through programs of education and publications.

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