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U.S. Pharma Industry Analysis

UpdatedAug 07, 2022
DataAggregated Company Financials
  • 7D-3.0%
  • 3M-0.2%
  • 1Y1.9%
  • YTD-1.4%

Over the last 7 days, the Pharma industry has dropped 3.0%, driven by declines in Eli Lilly and Johnson & Johnson of 8.6% and 2.0%, respectively. On the other hand Teva Pharmaceutical Industries is actually up 14%. As for the longer term, the industry's performance has been flat for the past year. Looking forward, earnings are forecast to grow by 9.9% annually.

Industry Valuation and Performance

Has the U.S. Pharma Industry valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Sun, 07 Aug 2022US$1.6tUS$403.3bUS$69.5b19.3x23.5x4.1x
Tue, 05 Jul 2022US$1.7tUS$392.4bUS$65.1b21.9x26x4.3x
Thu, 02 Jun 2022US$1.7tUS$392.5bUS$64.8b21.5x25.7x4.2x
Sat, 30 Apr 2022US$1.6tUS$380.0bUS$61.3b20.5x26.8x4.3x
Mon, 28 Mar 2022US$1.6tUS$373.8bUS$60.3b22.3x27.3x4.4x
Wed, 23 Feb 2022US$1.5tUS$373.4bUS$59.2b21x25.4x4x
Fri, 21 Jan 2022US$1.6tUS$361.3bUS$37.7b23.3x41.8x4.4x
Sun, 19 Dec 2021US$1.6tUS$361.1bUS$38.1b22.6x42.9x4.5x
Tue, 16 Nov 2021US$1.6tUS$360.6bUS$38.5b24.1x41.4x4.4x
Thu, 14 Oct 2021US$1.5tUS$337.7bUS$24.8b21.5x59.7x4.4x
Sat, 11 Sep 2021US$1.5tUS$338.7bUS$25.4b18.4x60.1x4.5x
Mon, 09 Aug 2021US$1.6tUS$338.5bUS$25.8b20.9x61.2x4.7x
Sun, 02 May 2021US$1.4tUS$315.6bUS$19.6b18.8x71.9x4.5x
Wed, 03 Feb 2021US$1.4tUS$304.8bUS$16.0b23.7x88x4.6x
Sat, 07 Nov 2020US$1.2tUS$284.8bUS$25.6b18.8x46.9x4.2x
Fri, 31 Jul 2020US$1.3tUS$279.3bUS$31.3b26.6x40.6x4.6x
Mon, 04 May 2020US$1.3tUS$282.6bUS$35.9b17.1x35x4.4x
Thu, 06 Feb 2020US$1.3tUS$279.5bUS$37.3b19x34.4x4.6x
Sun, 10 Nov 2019US$1.2tUS$295.0bUS$38.7b17.6x29.8x3.9x
Price to Earnings Ratio


Total Market Cap: US$1.1tTotal Earnings: US$38.0bTotal Revenue: US$293.5bTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Pharma Industry Price to Earnings3Y Average 46.3x202020212022
Current Industry PE
  • Investors are pessimistic on the American Pharmaceuticals industry, indicating that they anticipate long term growth rates will be lower than they have historically.
  • The industry is trading at a PE ratio of 23.5x which is lower than its 3-year average PE of 46.3x.
  • The industry is trading close to its 3-year average PS ratio of 4.4x.
Past Earnings Growth
  • The earnings for companies in the Pharmaceuticals industry have grown 22% per year over the last three years.
  • Revenues for these companies have grown 11% per year.
  • This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too.

Industry Trends

Which industries have driven the changes within the U.S. Healthcare industry?

US Market1.03%
Industry PE
  • Investors are most optimistic about the Pharma industry, which is trading close to its 3-year average PE ratio of 20.6x.
  • Analysts are expecting annual earnings growth of 9.9%, which is lower than the prior year's growth of 15% per year. So the market might believe that analysts are underestimating future growth.
Forecasted Growth
  • Analysts are most optimistic on the Pharma industry, expecting annual earnings growth of 9.9% over the next 5 years.
  • However this is lower than its past earnings growth rate of 15% per year.

    Top Stock Gainers and Losers

    Which companies have driven the market over the last 7 days?

    CompanyLast Price7D1YValuation
    TEVA Teva Pharmaceutical IndustriesUS$10.6914.0%
    ITCI Intra-Cellular TherapiesUS$59.9910.8%
    SIGA SIGA TechnologiesUS$23.3035.5%
    BHC Bausch Health CompaniesUS$5.5921.0%
    TLRY Tilray BrandsUS$3.906.8%
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    Aug 01

    Bristol-Myers Squibb: Nowhere To Go Even After Q2

    BMYs valuation indicates upside potential, while its financials give no reason for a significant rise in stock price. BMYs business model is known to be recession-proof, which could save it from a steep decline should the bear market continue. It's fundamentals are good but less than it's last years averages, leading to a more pessimistic look. Current FDA approvals and it's pipeline don't indicate significantly higher growth in the future. With this article, I want to explain why BMY has nowhere, either up or down, to go in the next time. For this, I will mainly write about the financials. Investment thesis Bristol-Myers Squibb (BMY) had a good run in the past, generating good results regarding the stock price and fundamentally. In recent history, growth slowed down, which is again seen in the recent Q2 earnings presentation. Since healthcare, and pharmaceuticals, in particular, are known to be recession-proof, Bristol-Myers Squibb performed well this year, outperforming the general market by a good margin. I maintain that slowed growth will hinder the stock from surging higher while they, due to their function as a save-haven, will probably not drop even when the market turns down even more. To explain this, I would focus on the financials instead of the business model, product pipelines or the pharmaceutical market. Financials Growth Between 2012 and 2021, BMY grew its sales by 18% and its EBIT by 28% ("CAGR"). These numbers were influenced mainly by acquisitions. Organic growth is around 8% annually, which isn't great. In Q2 earnings, which were just released, sales grew just 2% YoY (5% without forex changes), and Non-GAAP diluted EPS increased by 18.4% YoY. While I can't complain about the EPS growth, a measly 2% sales growth is not a good sign. To understand their growth rates, we have to look at the product groups: loss of exclusivity (LOE) products, in-line and new products. Revenue composition (bms.com/investors) LOE products are pharmaceuticals whose patents have run out and can be sold by other companies. Therefore prices and demand drops. One of BMY's LOEs is Revlimid, its former blockbuster product. However, its loss of sales of 22% has greatly upset the 11% growth of its in-line and new products. As of now, LOEs stand for roughly 23% of its overall sales, which is still a significant portion and will therefore upset its overall growth in the coming quarters. According to BMY's annual report 2021, Opdualag and CAMZYOS have the potential for $4+ billion in sales, making up roughly 2/3 of Revlimid's sales. There are other products in the pipeline that will bring in sales in future, but I don't see anything of them fueling significant growth soon. Analyst forecasts also reflect this: Revenue forecast (seekingalpha.com) Earnings forecast (seekingalpha.com) For the year 2025, analysts expect revenue of $50.3 billion which is 8.4% above the 2021 annual revenue and would therefore account for 2.1% revenue growth till 2025. Even when we assume that 2025 revenue is 10% above what the analysts expect, it will account for 4.8% annual growth until 2025. Earnings are expected to be $8.6 billion in 2025, meaning 15.3% total and 3.8% annual upside. Assuming 10% higher earnings, we would get 26.8% total and 6.7% annual upside. Operating cash flow shrank QoQ by 39.5% and YoY by 25.8% to $2.3 billion, so there is no growth either. That is nothing I think will fuel a significant rise in share price. With the Q2 earnings, BMY lowered its full-year guidance to $46 billion in revenue and $7.44-7.74 (7.59 median) Non-GAAP EPS. 2022 guidance (bms.com/investors) To bring that into perspective, the full-year revenue was $46.395 billion and $7.51 Non-GAAP EPS last year. We see a slight decline in revenue and maybe a bit of growth in EPS. Why is that? According to its Q2 earnings, it is mainly to reflect forex changes. Profitability BMYs profitability is excellent, earning an A+ in the Seeking Alpha profitability rating. The metrics are almost all above the sector median and mostly above BMYs own five-year average. Just competitors like Abbvie (ABBV) or Merck (MRK) have a few better profitability metrics. BMY profitability (seekingalpha.com) As you can see below, margins have been shrinking since the start of the year. Not much, obviously, but nothing that improves and could create upside in the share price. BMY Gross Profit Margin (Quarterly) data by YCharts Valuation BMY's performance wasn't the best in the last few years, as I will explain later. Meanwhile, the business itself performed very well, leading to an undervaluation. BMYs dynamic valuation (Aktienfinder.net) Above, you can see a dynamic view of BMYs valuation. The dashed line represents the 'fair value adjusted earnings' and the yellow line the 'fair value cash flow'. Both are oriented on historical averages. Easy to see that since 2017 the valuation has been rather low. DCF-Model - five years I have put the following data into my DCF model: Revenue growth: 2% until 2026 EBITDA margin: 40% until 2026 EBIT margin: 20% until 2026 Long-term growth rate: 2% WACC: 4.55% My DCF model is very detailed, but these are the most important numbers. DCF model (Author) As you can see, my DCF model gives a price target of roughly $120, which implements an upside of 62%. Performance As mentioned earlier, the performance has lacked a bit since 2017, even though it performed very well in the past. Since its inception, BMY has generated a 1200% total return, outperforming the 900% the S&P 500 did in the same timeframe. BMY Total Return Level data by YCharts Looking at the last five years, you can see that BMY started to catch up with the market at the beginning of this year. Simultaneously, the S&P 500 fell due to inflation, rate hikes, war and recession fears since the beginning of the year. This led to a (short-lived) outperformance, the first since 2018.