SNDL Inc. (SNDL) vs. GSK plc (GSK): Analyzing the Better Long-Term Pharma Investment

Strategic investments in technology enable the manufacturing of small, tailored drug batches, demanding flexible facilities for rapid formulation changes. This evolution is optimizing drug customization and elevating patient-centric care in pharmaceutical practices.

In light of this, I evaluated two prominent pharma stocks, SNDL Inc. (SNDL) and GSK plc (GSK), to ascertain which holds the potential to yield superior long-term returns. Let's understand this in detail.

In 2023, AI asserted its dominance, heralding an era defined by technological prowess. The ascent is poised to persist into 2024. Generative AI has been proving invaluable in drug discovery. Facilitating swifter design, property prediction, and optimization of drug candidates it has been eclipsing conventional methods with unparalleled efficiency.

The industry is undergoing continuous progression, with companies dedicating a significant share, frequently 20% or more, of their sales revenues to R&D initiatives. This commitment is fueling the discovery of novel medicines and the refinement of existing ones, perpetuating advancements in the pharmaceutical landscape.

For instance, a rising acceptance of medical cannabis can be observed. In the United States, seniors are using cannabis to treat pain, anxiety, and sleeplessness, as the substance potentially holds multiple medical benefits.

Furthermore, according to a Research and Markets report, the global pharmaceutical drugs market is poised to rise from $1.14 trillion in 2022 to $1.20 trillion in 2023, demonstrating a 5.6% CAGR. Forecasts suggest further acceleration at an 11.4% CAGR, reaching $1.85 trillion by 2027.

In terms of price performance, SNDL has gained 2.1% in the past month, while GSK marginally declined during the same period. However, SNDL witnessed an 18.2% plunge over the past three months, while GSK gained 2.6% over the same duration.

Furthermore, SNDL has plummeted 43.1% over the past year, closing the last trading session at $1.48, whereas GSK has gained 7.6% during the same period, closing the last trading session at $35.38.

But which Medical - Pharmaceuticals stock could be a better pick? Let's find out.

Recent Financial Results

For the fiscal third quarter that ended September 30, 2023, SNDL's gross margin declined 3.4% year-over-year to CAD 48.61 million ($35.45 million). Its cash outflow from financing activities grew 22.8% from the year-ago value to CAD 10.02 million ($7.31 million). Also, the company's net loss for the period stood at CAD 21.83 million ($15.92 million).

As of September 30, 2023, SNDL's cash and cash equivalents amounted to CAD 201.98 million ($147.33 million), compared to CAD 279.59 million ($203.94 million) as of December 31, 2022.

For the fiscal third quarter that ended September 30, 2023, GSK's turnover increased 4.1% year-over-year to £8.15 billion ($10.21 billion). Its gross profit grew 8.7% from the prior year's period to £5.88 billion ($7.36 billion). Also, the company's operating profit rose 63.6% from the year-ago value to £1.95 billion ($2.44 billion).

As of September 30, 2023, GSK's total assets came in at £60.86 billion ($76.28 billion), compared to £60.15 billion ($75.38 billion) as of December 31, 2022.

Past and Expected Financial Performance

Over the past three years, SNDL's revenue increased at a CAGR of 144.3%. Analysts expect SNDL's revenue to grow 25.9% year-over-year to $662.25 million for the fiscal year ending December 2023. However, the company is expected to report a loss per share of $0.07 for the ongoing year.

Over the past three years, GSK's revenue declined at a CAGR of 4.7%. For the fiscal year ending December 2023, GSK's revenue is expected to increase 2.3% year-over-year to $37.11 billion. Similarly. the company's EPS for the ongoing year is expected to be $3.78, up 9.9% from the previous year.

Profitability

GSK's trailing-12-month revenue is 54.5 times that of what SNDL generates. Moreover, GSK is more profitable, with a trailing-12-month gross profit margin of 72.14%, compared to SNDL's 19.61%.

Additionally, GSK's trailing-12-month EBITDA margin and net income margin of 30.98% and 20.48% compare to SNDL's EBITDA margin and net income margin of negative 10.48% and 23.94%, respectively.

POWR Ratings

SNDL has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, GSK has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SNDL has a D grade for Quality, reflecting its lower-than-industry profitability. Its trailing-12-month EBIT margin and levered FCF margin of negative 12.46% and negative 1.08% compare to the respective industry averages of negative 0.09% and 0.11%.

In contrast, GSK has a B grade for Quality, supported by its higher-than-industry profitability. Its trailing-12-month EBIT margin of 25.83% compares with the negative 0.09% industry average, while its trailing-12-month levered FCF margin of 6.28% is significantly higher than the 0.11% industry average.

In addition, SNDL has a C grade for Sentiment, justified by its mixed analyst estimates. In comparison, GSK has a B grade for Sentiment, consistent with its favorable analyst outlook.

Of the 153 stocks in the Medical - Pharmaceuticals industry, SNDL is ranked #141, while GSK is ranked #7. 

Beyond what we've stated above, we have also rated both stocks for Growth, Value, Momentum, and Stability. Click here to view SNDL's ratings. Get all GSK ratings here.

The Winner

The pharmaceutical sector is well-positioned for significant long-term growth owing to the convergence of technological advancements, substantial R&D investments, and transformative innovations.

While both SNDL and GSK stand to benefit, GSK's superior financial performance, higher profitability, and favorable analyst sentiment position it as a better investment choice over SNDL.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Medical - Pharmaceuticals industry here.

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GSK shares were trading at $35.18 per share on Wednesday morning, down $0.20 (-0.57%). Year-to-date, GSK has gained 4.04%, versus a 20.24% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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