The pharmaceutical industry thrives due to increased demand for medications and treatments, technological advancements, and R&D investments that lead to developing new drugs and therapies. The sector looks well-positioned to grow due to a rapidly aging population and the rise in chronic diseases.
The American pharmaceutical industry, which accounts for 40 – 45% of global pharmaceutical revenues, has significant market domination and economic impact, demonstrating the industry’s strength and competitiveness. By 2025, North America’s pharmaceutical industry is expected to hit over $594 billion in revenue.
Additionally, technological advancements like robotics and AI boost efficiency in pharma manufacturing processes, leading to faster production and improved quality control. These advancements are also enabling pharmaceutical companies to develop innovative treatments and medications at a quicker pace, ultimately benefiting patients worldwide.
The global pharma manufacturing market is expected to grow at a CAGR of 11.6% to reach $2.30 trillion by 2032. According to Statista, worldwide pharmaceutical revenues are expected to grow at a CAGR of 6.2% to reach $1.47 trillion by 2028. Investors’ interest in pharmaceutical stocks can be gauged from iShares U.S. Pharmaceuticals ETF’s (IHE) 11.3% returns over the past six months.
Given this backdrop, let’s compare two Medical – Pharmaceuticals stocks, Merck & Co. (MRK) and AbbVie Inc. (ABBV), to understand why MRK will drive earnings growth.
The Case for Merck & Co. Stock
Merck & Co. (MRK) operates as a healthcare company. It operates through the Pharmaceutical and Animal Health segments. The Pharmaceutical segment provides human health pharmaceuticals. The Animal Health segment specializes in discovering, developing, manufacturing, and marketing veterinary pharmaceuticals, vaccines, and health management solutions.
MRK’s stock has gained 22.8% over the past six months and 16.4% year-to-date to close the last trading session at $126.88.
MRK’s revenue grew at a CAGR of 13.1% over the past three years. Similarly, its Total Assets grew at a CAGR of 5.2% over the past three years.
In terms of forward non-GAAP P/E, MRK is trading at 14.82x, 23.8% lower than the industry average of 19.46x. Likewise, its EV/EBIT is trading at 13.58x, 16.1% lower than the 16.17x industry average.
On the other hand, its forward EV/Sales is trading at 5.50x, 67.2% higher than the industry average of 3.29x. Similarly, its forward Price/Sales is trading at 5.04x, 45.1% higher than the industry average of 3.47x.
In terms of the trailing-12-month EBITDA margin, MRK’s 13.80% is 164.5% higher than the 5.22% industry average. Likewise, its 7.59% trailing-12-month EBIT margin is significantly higher than the 0.34% industry average. Also, its 3.54% trailing-12-month levered FCF margin is 314.1% higher than the 0.86% industry average.
MRK’s sales during the fiscal year that ended December 31, 2023, came in at $60.12 billion, rising 1.4% year-over-year. Its income before taxes stood at $1.89 billion. Furthermore, net income attributable to MRK and earnings per common share amounted to $365 million and $0.14, respectively.
Analysts expect MRK’s EPS and revenue for the quarter ended March 31, 2024, to increase 37.2% and 5% year-over-year to $1.92 and $15.20 billion, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
MRK POWR Ratings reflect this promising outlook. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Stability, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, MRK is ranked #3 out of 160 stocks. To see the additional grades of MRK for Value and Momentum, click here.
The Case for AbbVie Inc. Stock
AbbVie Inc. (ABBV) is a global pharmaceutical company known for its diverse portfolio, including medications like Humira, Skyrizi, and Imbruvica, addressing conditions ranging from autoimmune diseases to cancer and neurological disorders.
ABBV’s stock has gained 18% over the past nine months and 4.4% over the past year to close the last trading session at $169.54.
ABBV’s revenue grew at a CAGR of 5.9% over the past three years. Furthermore, its levered FCF grew at a CAGR of 11.7% over the past three years. Similarly, its EBITDA grew at a CAGR of 7.6% during the same time frame.
In terms of forward EV/Sales, ABBV is trading at 6.32x, 92.4% higher than the industry average of 3.29x. Additionally, the stock’s forward Price/Sales of 5.50x is 58.6% higher than the industry average of 3.47x.
In terms of the trailing-12-month EBIT margin, ABBV’s 32.51% is considerably higher than the 0.34% industry average. Likewise, its 41.66% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.86%. Additionally, its 0.40x trailing-12-month asset turnover ratio is 1.2% higher than the industry average of 0.39x.
For the fiscal fourth quarter, which ended on December 31, 2023, ABBV’s net revenues amounted to $14.30 billion, while its attributable net earnings and adjusted EPS came in at $822 million and $2.79, respectively. Moreover, the company’s operating earnings stood at $3.20 billion.
Street expects ABBV’s revenue and EPS for the quarter ending March 31, 2024, to decrease 2.4% and 8.1% year-over-year to $11.93 billion and $2.26, respectively. Its EPS and revenue for fiscal 2024 are expected to increase 0.4% and 0.5% year-over-year to $11.16 and $54.57 billion, respectively.
ABBV’s POWR Ratings reflect its bright prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Quality. Within the same industry, it is ranked #5. Beyond what we stated above, we also have given ABBV grades for Momentum and Sentiment. Get all the ABBV ratings here.
Merck (MRK) vs. AbbVie (ABBV): Which Pharma Stock Will Drive Earnings Growth?
Research and development in the pharmaceutical industry have led to the discovery of new drugs and treatments for various diseases. This has significantly improved healthcare quality and extended individuals' life expectancy worldwide.
Companies like MRK and ABBV, which are at the forefront of developing innovative treatments, will likely benefit from the continual advancements in pharmaceutical research.
Both MRK and ABBV look well-positioned to capitalize on the industry’s promising prospects. Although both have solid fundamentals, solid historical growth metrics, and high profitability, MRK appears to be a better choice than ABBV due to its favorable analyst estimates.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical – Pharmaceuticals industry here.
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MRK shares were trading at $125.79 per share on Wednesday morning, down $1.09 (-0.86%). Year-to-date, MRK has gained 16.11%, versus a 7.00% 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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