It hasn't been the easiest of years for Johnson & Johnson (JNJ -0.46%), Amgen (AMGN 0.22%) and Gilead Sciences (GILD 0.23%). Shares of all three healthcare companies are trading flat or down amid challenges. Continued uncertainty regarding talc lawsuits is weighing on Johnson & Johnson. Amgen's huge pipeline hasn't been fully appreciated by the market, and Gilead's settlement of an antitrust lawsuit resulted in lowering yearly earnings per share guidance.
However, all three also have great growth profiles that haven't been fully factored into their shares. Each also offers an above-average dividend that will pay investors to wait until the stocks rise. Here's why each pharmaceutical company is a solid buy right now.
Johnson & Johnson has reason for optimism
Johnson & Johnson's spinoff of its former Consumer Health division into Kenvue is complete, but investors appear not to have noticed the difference. That may be because talc lawsuit concerns continue to be in the news. J&J was just able to get a $223 million jury verdict in a talc case overturned by a New Jersey state appeals court. The company also said it is making a third attempt at a bankruptcy resolution of talc-related lawsuits through its LTL Management affiliate.
The whole point of spinning off Kenvue was to improve earnings growth for Johnson & Johnson, and in the third quarter -- the first since the spinoff -- that's exactly what took place. J&J reported revenue of $21.4 billion, up 6.4% year over year, and earnings per share (EPS) of $1.69, up 4.3%.
The numbers are impressive because, like some other drug makers, the company saw its COVID-19-related sales slump. If you took COVID-19 sales out of the mix, the company's operation revenue would be up 9% year over year.
J&J's MedTech segment was the star of the report, showing revenue growing by 10% year over year. Part of that was due to the acquisition of Abiomed, which added 4.6% of additional revenue. The company said it also got a boost from products related to electrophysiology, wound closure, contact lenses, and biosurgery.
The company's Innovative Medicine segment also did well, with revenue rising by 5.1% to $13.9 billion. The biggest sellers were immunology drug Stelara, which rose 16.9% year over year to $2.8 billion, and oncology drug Darzalex, which brought in $2.5 billion, up 21.8% compared to the same period a year ago. Johnson & Johnson also increased guidance for yearly revenue, adjusting the range to be between $83.6 billion and $84 billion, a rise of 7.7% at the midpoint.
The stock remains a solid choice for income-oriented investors. At its current price, the stock is trading at a little more than 11 times earnings. The company also raised its quarterly dividend by 5.3% this year to $1.19, delivering a yield of around 3.11%, nearly double the S&P 500 average dividend yield of 1.16%. The company has boosted its quarterly dividend for 61 consecutive years.
Amgen's huge pipeline is about to burst
Amgen is a biotech company whose portfolio includes oncology and hematology drugs, as well as therapies to treat inflammation, cardiovascular disease, kidney disease, and neuroscience diseases, as well as to improve bone health.
The stock is trading at around 18 times earnings, and its shares are up slightly, a little more than 4% so far this year. I believe the company's growth potential hasn't been fully factored in by investors. The company already had a strong pipeline with 50 programs, and its purchase of Horizon Therapeutics, which is expected to close later this year, only increases the chances of the company developing more blockbuster drugs.
Some of the company's most promising pipeline therapies include AMG 193 to treat non-small cell lung cancer (NSCLC) and other solid tumors, Xaluritamig to treat prostate cancer and NSCLC, and prostate cancer therapy Tarlatamab, a bispecific T cell-engaging (BiTE) antibody.
In the second quarter, the company reported revenue of $7 billion, up 6% year over year. That rise was driven by double-digit sales growth for osteoporosis drug Prolia, cholesterol drug Repatha, inflammation drug Evenity, asthma treatment Tezspire, and cancer therapies Blincyto, Kyprolis, and Vectibix, as well as Amjevita, a Humira biosimilar.
Amgen also has a dividend that yields slightly more than 3%, and the company has raised its quarterly dividend for 12 consecutive years, including a 9.7% bump this year to $2.13 a share.
Gilead is seeing strong growth in oncology, HIV therapies
Gilead's strong portfolio of oncology and HIV therapies continues to drive revenue growth. Yet, the stock is trading at under 18 times earnings. What gives?
Much of that is because of its recent $525 million antitrust settlement over accusations that it conspired with Teva Pharmaceuticals to delay generic versions of Gilead's HIV drugs. That cost has cut into its profitability. However, in the long term, that's just a bump the company will drive past.
In the second quarter, Gilead reported revenue of $6.6 billion, up 5% year over year, led by increased sales of its oncology drugs, led by Trodelvy, whose sales jumped 63% year over year to $260 million, and its HIV therapies, particularly Biktarvy, whose sales were $2.9 billion, up 17% compared to the same period last year.
The overall sales rise would have been 11% compared to the same period last year, if you take out sales of the company's COVID-19 therapy, Veklury, which were down sharply. The company reported EPS of $0.83 compared to $0.91 in the same period in 2022, but quarterly EPS would have been $1.15, were it not for the impact of the company's one-time settlement costs.
The company raised yearly revenue guidance to be between $26.3 billion and $26.7 billion, up from a range of between $26 billion and $26.5 billion. It lowered its yearly EPS guidance to be between $4.50 and $4.85, compared to earlier forecasts of between $4.75 and $5.15.
Gilead has spent big on research and development, and the spending is about to pay off. The company has 64 programs in its pipeline, including 20 therapies in phase 3 trials.
Like the other two aforementioned stocks, Gilead has an above-average dividend, with a yield of around 3.8%. The company raised its dividend by 2.7% this year to $0.75 per quarterly share, the eighth consecutive year it has increased its dividend since it first issued one in 2015.
