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3 Big Drugmaker Stocks to Watch Out For Amid Pandemic Woes
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The large drugmakers mostly reported disappointing first-quarter 2021 results with many companies missing estimates for both earnings and sales. Revenues of drugmakers like, Merck (MRK - Free Report) , Novartis (NVS - Free Report) , and Lilly (LLY - Free Report) were hurt due to pandemic-related business disruption. Most companies, however, maintained their previously issued financial guidance for 2021. Nonetheless, some companies like J&J (JNJ - Free Report) AbbVie (ABBV - Free Report) and AstraZeneca (AZN - Free Report) announced better-than-expected results. Many large drugmakers have successfully developed COVID-19 medicines and vaccines, most notably Pfizer (PFE - Free Report) . These COVID-19 medicines and vaccines boosted the drugmakers’ revenues.
Industry Description
The Zacks Large Cap Pharmaceuticals industry comprises some of the largest global companies that developmulti-million dollar drugs for a broad range of therapeutic areas such as neuroscience, cardiovascular and metabolism, rare diseases immunology and oncology. Some of these companies also make vaccines, animal health, medical devices and consumer-related healthcare products. All these players invest millions of dollars in their product pipelines and line extensions of their already marketed drugs.
What’s Shaping the Future of the Large-Cap Pharma Industry?
Innovation and Pipeline Success: For big drugmakers, innovation in their pipeline is a competitive necessity and key to top-line growth. Pharma companies are constantly striving to ramp up innovation and spending a significantly high portion of their revenues on R&D. Successful innovation and product line extensions in important therapeutic areas and strong clinical study results may act as important catalysts for these stocks.
Aggressive M&A & Collaboration Activity: The sector is characterized by aggressive M&A activity. Given that it takes several years and millions ofdollars to develop new therapeutics from scratch, large pharmaceutical companies sitting on huge piles of cash regularly buy innovative small/mid-cap biotech companies to build out their pipelines. Also, sloppy sales of mature drugs, dwindling in-house pipelines, government scrutiny of drug prices and emergence of big tech firms like Apple and Google in the healthcare industry whet the M&A appetite of large drugmakers. However, after a flurry of deals in 2019, M&A activity significantly slowed down in 2020, mainly due to the impact of the coronavirus pandemic. Nonetheless, AstraZeneca’s offer to buy biotech giant, Alexion indicates that M&A activity might pick up once again in 2021. Meanwhile, collaborations and partnerships with smaller companies are in full swing, mainly for making antivirals and vaccines for COVID-19.
Pipeline Setbacks & Other Headwinds: Failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be setbacks for large drug companies and significantly hurt their share price. Other headwinds for the industry include government scrutiny of high drug prices, pricing and competitive pressure, generic competition for blockbuster treatments and slowdown in sales of some of the most high-profile older drugs.
Uncertainty Surrounding the Pandemic: The pandemic has hurt demand trends of physician-administered drugs of most companies. Though trends are recovering somewhat, the recovery has been at a slower pace than originally expected due to rising cases of infections due to the second wave of the pandemic. Thepandemic is expected to continue to hurt drugmakers’ sales in the second quarter with some stability expected in the second half of the year.
Zacks Industry Rank Indicates Bleak Prospects
The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #231, which places it in the bottom 8% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few large drug stocks that are well positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s performance and its current valuation.
Industry Versus S&P 500 & Sector
The Zacks Large Cap Pharmaceuticals industryis a 14-stock group within the broader Medical sector. It has underperformed the S&P 500 but outperformed the Zacks Medical Sector on a year-to-date basis.
Stocks in this industry have collectively risen 1.8% year to date compared with the Zacks S&P 500 composite’s rise of 12.5%. The Zacks Medical Sector has declined 0.1% in the said time frame.
Year-to-Date Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 13.99X compared with the S&P 500’s 22.45X and the Zacks Medical sector's 22.89X.
Over the last five years, the industry has traded as high as 16.62X, as low as 13.18X and at a median of 15.03X as the chart below shows.
Forward 12 Month Price-to-Earnings (P/E) Ratio
3 Large Drugmakers to Keep an Eye On
Pfizer: The Consumer Healthcare joint venture with Glaxo and the merger of Upjohn unit with Mylan has made Pfizer a smaller company with a diversified portfolio of innovative drugs and vaccines. The smaller Pfizer should see better revenue growth. Pfizer expects strong growth of key brands like Ibrance, Inlyta and Eliquis to drive sales. Its COVID-19 vaccine candidate, developed in record time, is now approved for emergency use in several countries, bringing in additional revenues for the company. Pfizer boasts a sustainable pipeline with multiple late-stage pipeline programs that can drive growth. The company has a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for this New York based drugmaker’s 2021 EPS has risen 1.5% over the past 30 days. The stock has risen 5% so far this year.
Price and Consensus: PFE
Johnson & Johnson: J&J’s diversification makes it relatively resilient amid macroeconomic turmoil. The Pharma unit is performing at above-market levels, supported by successful label expansion of blockbuster drugs, Imbruvica, Darzalex and Stelara. Its Medical Devices segment is also demonstrating a strong recovery after the pandemic hurt its sales in the first half of 2020. J&J is also making rapid progress with its pipeline and line extensions. Several pivotal data readouts are expected in 2021. After, a temporary pause in J&J’s COVID-19 vaccine rollout, vaccination was resumed last month. However, J&J faces numerous lawsuits, which allege personal injuries to patients caused by the use of its products. These lawsuits have resulted in uncertainties. J&J has a Zacks Rank #3.
The Zacks Consensus Estimate for this New Brunswick, NJ based drugmaker’s 2021 EPS has risen 0.4% over the past 30 days. The stock has risen 3.4% so far this year.
Price and Consensus: JNJ
AstraZeneca: This #3 Ranked company’s newer drugs, mainly cancer medicines Lynparza, Tagrisso and Imfinzi should keep driving revenues. Its pipeline is strong with several phase III data readouts lined up for 2021. AstraZeneca has also engaged in external acquisitions and strategic collaborations to boost its pipeline while investing in geographic areas of high growth like China. Cost-cutting efforts should drive earnings.
Shares of this British drugmaker have risen 6.2% this year so far. The Zacks Consensus Estimate for 2021 EPS has been revised 1.6% upward over the past 30 days.
Price and Consensus: AZN
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Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
Image: Bigstock
3 Big Drugmaker Stocks to Watch Out For Amid Pandemic Woes
The large drugmakers mostly reported disappointing first-quarter 2021 results with many companies missing estimates for both earnings and sales. Revenues of drugmakers like, Merck (MRK - Free Report) , Novartis (NVS - Free Report) , and Lilly (LLY - Free Report) were hurt due to pandemic-related business disruption. Most companies, however, maintained their previously issued financial guidance for 2021. Nonetheless, some companies like J&J (JNJ - Free Report) AbbVie (ABBV - Free Report) and AstraZeneca (AZN - Free Report) announced better-than-expected results. Many large drugmakers have successfully developed COVID-19 medicines and vaccines, most notably Pfizer (PFE - Free Report) . These COVID-19 medicines and vaccines boosted the drugmakers’ revenues.
Industry Description
The Zacks Large Cap Pharmaceuticals industry comprises some of the largest global companies that developmulti-million dollar drugs for a broad range of therapeutic areas such as neuroscience, cardiovascular and metabolism, rare diseases immunology and oncology. Some of these companies also make vaccines, animal health, medical devices and consumer-related healthcare products. All these players invest millions of dollars in their product pipelines and line extensions of their already marketed drugs.
What’s Shaping the Future of the Large-Cap Pharma Industry?
Innovation and Pipeline Success: For big drugmakers, innovation in their pipeline is a competitive necessity and key to top-line growth. Pharma companies are constantly striving to ramp up innovation and spending a significantly high portion of their revenues on R&D. Successful innovation and product line extensions in important therapeutic areas and strong clinical study results may act as important catalysts for these stocks.
Aggressive M&A & Collaboration Activity: The sector is characterized by aggressive M&A activity. Given that it takes several years and millions ofdollars to develop new therapeutics from scratch, large pharmaceutical companies sitting on huge piles of cash regularly buy innovative small/mid-cap biotech companies to build out their pipelines. Also, sloppy sales of mature drugs, dwindling in-house pipelines, government scrutiny of drug prices and emergence of big tech firms like Apple and Google in the healthcare industry whet the M&A appetite of large drugmakers. However, after a flurry of deals in 2019, M&A activity significantly slowed down in 2020, mainly due to the impact of the coronavirus pandemic. Nonetheless, AstraZeneca’s offer to buy biotech giant, Alexion indicates that M&A activity might pick up once again in 2021. Meanwhile, collaborations and partnerships with smaller companies are in full swing, mainly for making antivirals and vaccines for COVID-19.
Pipeline Setbacks & Other Headwinds: Failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be setbacks for large drug companies and significantly hurt their share price. Other headwinds for the industry include government scrutiny of high drug prices, pricing and competitive pressure, generic competition for blockbuster treatments and slowdown in sales of some of the most high-profile older drugs.
Uncertainty Surrounding the Pandemic: The pandemic has hurt demand trends of physician-administered drugs of most companies. Though trends are recovering somewhat, the recovery has been at a slower pace than originally expected due to rising cases of infections due to the second wave of the pandemic. Thepandemic is expected to continue to hurt drugmakers’ sales in the second quarter with some stability expected in the second half of the year.
Zacks Industry Rank Indicates Bleak Prospects
The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #231, which places it in the bottom 8% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few large drug stocks that are well positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s performance and its current valuation.
Industry Versus S&P 500 & Sector
The Zacks Large Cap Pharmaceuticals industryis a 14-stock group within the broader Medical sector. It has underperformed the S&P 500 but outperformed the Zacks Medical Sector on a year-to-date basis.
Stocks in this industry have collectively risen 1.8% year to date compared with the Zacks S&P 500 composite’s rise of 12.5%. The Zacks Medical Sector has declined 0.1% in the said time frame.
Year-to-Date Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 13.99X compared with the S&P 500’s 22.45X and the Zacks Medical sector's 22.89X.
Over the last five years, the industry has traded as high as 16.62X, as low as 13.18X and at a median of 15.03X as the chart below shows.
Forward 12 Month Price-to-Earnings (P/E) Ratio
3 Large Drugmakers to Keep an Eye On
Pfizer: The Consumer Healthcare joint venture with Glaxo and the merger of Upjohn unit with Mylan has made Pfizer a smaller company with a diversified portfolio of innovative drugs and vaccines. The smaller Pfizer should see better revenue growth. Pfizer expects strong growth of key brands like Ibrance, Inlyta and Eliquis to drive sales. Its COVID-19 vaccine candidate, developed in record time, is now approved for emergency use in several countries, bringing in additional revenues for the company. Pfizer boasts a sustainable pipeline with multiple late-stage pipeline programs that can drive growth. The company has a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for this New York based drugmaker’s 2021 EPS has risen 1.5% over the past 30 days. The stock has risen 5% so far this year.
Price and Consensus: PFE
Johnson & Johnson: J&J’s diversification makes it relatively resilient amid macroeconomic turmoil. The Pharma unit is performing at above-market levels, supported by successful label expansion of blockbuster drugs, Imbruvica, Darzalex and Stelara. Its Medical Devices segment is also demonstrating a strong recovery after the pandemic hurt its sales in the first half of 2020. J&J is also making rapid progress with its pipeline and line extensions. Several pivotal data readouts are expected in 2021. After, a temporary pause in J&J’s COVID-19 vaccine rollout, vaccination was resumed last month. However, J&J faces numerous lawsuits, which allege personal injuries to patients caused by the use of its products. These lawsuits have resulted in uncertainties. J&J has a Zacks Rank #3.
The Zacks Consensus Estimate for this New Brunswick, NJ based drugmaker’s 2021 EPS has risen 0.4% over the past 30 days. The stock has risen 3.4% so far this year.
Price and Consensus: JNJ
AstraZeneca: This #3 Ranked company’s newer drugs, mainly cancer medicines Lynparza, Tagrisso and Imfinzi should keep driving revenues. Its pipeline is strong with several phase III data readouts lined up for 2021. AstraZeneca has also engaged in external acquisitions and strategic collaborations to boost its pipeline while investing in geographic areas of high growth like China. Cost-cutting efforts should drive earnings.
Shares of this British drugmaker have risen 6.2% this year so far. The Zacks Consensus Estimate for 2021 EPS has been revised 1.6% upward over the past 30 days.
Price and Consensus: AZN
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>