Fresenius Medical Care (FMS 0.39%), Pfizer (PFE +1.65%), and Viatris (VTRS 2.44%) have seen their shares slide so far this year. That may be bad news for their current investors, but it could be good news for the companies' future investors.
I believe these healthcare stocks have been oversold, making these quality companies more affordable and driving up the yield of their quarterly dividends. The companies have solid cash flows and with low payout ratios, and their dividends and future dividend raises appear safe. With relatively low valuations, it makes sense to scoop these up now.
Fresenius benefits in the pandemic's aftermath
Fresenius, a German company that specializes in healthcare services for kidney dialysis patients, has seen its shares fall more than 54% this year. Management recently lowered its guidance, but the stock's huge drop is an overreaction that investors can use to buy a solid company with a respectable dividend on the dip.
NYSE: FMS
Key Data Points
The need for dialysis is expected to grow as many of those who survived COVID-19 did so with damaged kidneys that will require dialysis. According to a report by 360 Market Updates, the global dialysis market was valued at $92.4 billion in 2021 and is expected to grow at a compound annual rate of 6.8% between now and 2028, reaching a market size of $137 billion by that time.
Fresenius reported third-quarter numbers on Nov. 1, and the results were mixed. While revenue was reported as $5.14 billion, up 15% year over year, the company's earnings per share (EPS) came in at $0.39, down 16% from the same period in 2022. The company said the reason for the EPS decline was the impact of inflation and labor challenges, particularly in its North American unit.
The company lowered estimates for annual revenue growth to the low single digits in percentage points with net income falling, year over year, in the high to mid-20s percentage range. At this point, it appears the negatives for the stock are more than priced in with the company trading for only slightly more than 10 times earnings. The company said it has a plan to trim costs by 2025, with many of those cost savings taking effect next year.
Fresenius raised its dividend to $0.71 per quarter this year; that's the 25th year it has increased its payout. The dividend's yield is 3.5% and the company's payout ratio is a low 24%, so the dividend is safe and there's room for continued growth.
Pfizer's coronavirus collapse is overstated
Shares of pharmaceutical giant Pfizer are down more than 19% so far this year. The company's third-quarter numbers didn't fare so well compared to a year ago, but that's because the third quarter of 2021 benefited from higher sales of coronavirus therapy Paxlovid and COVID-19 vaccine Comirnaty.
The company reported third-quarter revenue of $22.6 billion, down 2% year over year, but if the Paxlovid and Comirnaty sales are taken out of the equation, revenue would have been up 2% over the same period in 2021. Earnings remained strong as the company reported EPS of $1.51, up 6% year over year.
NYSE: PFE
Key Data Points
Unlike Fresnenius, Pfizer just raised annual expectations. It said it expects full-year revenue to fall between $99.5 and $102 billion, compared to the $91.3 billion it reported last year. It also expects adjusted diluted EPS to fall between $6.40 and $6.50, up from earlier estimates of $6.30 to $6.45.
Pfizer is trading for a little more than 9 times earnings, which could end up being a ridiculous bargain next year as CEO Albert Bourla said Pfizer is on track to bring up to 19 new products or indications to market over the next 18 months.
In the meantime, investors can hang on to the stock and benefit from a dividend that has a yield around 3.38%. The company raised its dividend by 2.6% to $0.40 this year, the 13th consecutive year Pfizer has boosted its payout. Its annual cash dividend payout ratio is 29%, leaving plenty of room to continue dividend raises.
Viatris deserves more love
Viatris' shares are down more than 19% so far this year. However, investor sentiment may be starting to turn as the pharmaceutical company's shares are up more than 7% since the company released its third-quarter report and announced its plans for two key acquisitions recently.
NASDAQ: VTRS
Key Data Points
Viatris was spun off from Pfizer's Upjohn unit and then combined with generic drugmaker Mylan in November 2020.
The company said this week that it plans to spend $700 million to $750 million to purchase Oyster Point Pharma and Famy Life Sciences to create an ophthalmology franchise. The company said it expects the deal to be completed in the first quarter of 2023 and be accretive by next year and, by 2028, be worth potentially $1 billion in annual sales.
In the third quarter, Viatris reported $4.08 billion in revenue, down 10% year over year, but it had EPS of $0.29, up 11.5% compared to the same period last year -- and that's after paying down $2.1 billion in debt during the quarter.
Viatris reaffirmed its guidance for annual revenue between $16.2 billion and $16.7 billion, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from $5.8 million to $6.2 million, and free cash flow from $2.5 billion to $2.9 billion.
The company also raised its quarterly dividend by 9% this year to $0.12, giving it a yield of around 4.4% and a very safe dividend payout ratio of 16%.
