The Top 11 Big Pharma Stocks Now, Ranked In Order

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The Top 11 Big Pharma Stocks Now, Ranked In Order


Updated on August 31st, 2021 by Bob Ciura

Drug companies are often considered defensive in nature due to their stable earnings, through good economies and bad. People with illnesses or diseases will likely seek out treatments to improve their quality of life, regardless of the condition of the economy.

The high cost of life saving or improving medicines means that pharmaceutical companies often generate huge amounts of cash flow, which allows them to pay high dividend yields. Even in a recession, many of these companies are able to keep paying and raising dividends due to the large amount of cash on the balance sheet.

For all these reasons, pharmaceutical stocks are strong candidates for a dividend growth portfolio. This article examines 11 of the largest pharmaceutical stocks in detail. All 11 stocks pay dividends, and can be found on our list of 203 dividend-paying healthcare stocks.

You can see the full list of all 200+ healthcare dividend stocks (along with metrics that matter like dividend yields and price-to-earnings ratios) by clicking on the link below:

 

The list is ranked by their total annual expected return over the next five years. Rankings are determined by expected annual return, based on the stock’s current yield, valuation changes, and earnings growth. All healthcare stocks can be found in the Sure Analysis Research Database.

Related: Watch the video below to learn how to calculate expected total return for any stock.

Table of Contents

This article will discuss our top 11 Big Pharma stock right now, based on expected annual returns over the next five years, lowest to highest. All 11 stocks pay dividends to shareholders, and have Dividend Risk scores of C or higher in the Sure Analysis Research Database.

You can instantly jump to a specific section of the article by clicking on the links below:

Big Pharma Stock #11: Abbott Laboratories (ABT)

Abbott Laboratories is one of the largest medical appliances & equipment manufacturers in the world, comprised of four segments: Nutrition, Diagnostics, Established Pharmaceuticals and Medical Devices. Abbott has increased its dividend for 49 years, including its impressive 25% dividend increase in 2020.

Abbott is a member of the exclusive Dividend Aristocrats list, a group of 65 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases.

Abbott has a large and diversified product portfolio, with leadership across multiple categories.

On July 22nd, 2021, Abbott Laboratories reported Q2 2021 results for the period ending June 30th, 2021. For the quarter the company generated $10.22 billion in sales (65% outside of the U.S.) representing a 39.5% increase compared to Q2 2020.

Source: Company Infographic

Results were up across the board with Diagnostics, Medical Devices, Nutrition and Established Pharmaceuticals increasing organic revenue by 57%, 45%, 9.5% and 14.5% respectively. Diagnostics sales continue to be propelled by demand for COVID-19 tests.

Reported earnings per share equaled $0.66, with adjusted EPS totaling $1.17 versus $0.57 prior. Abbott Laboratories also updated its 2021 guidance, now anticipating adjusted earnings per share of $4.30 to $4.50, down from “at least $5.00” previously.

With a P/E of 28.6, Abbott appears overvalued. Our fair value estimate is a P/E of 20. Overvaluation could significantly weigh on shareholder returns going forward. Expected EPS growth of 6% per year plus the 1.4% dividend yield will offset the impact of a declining P/E multiple, but total returns are expected at just 0.7% per year over the next five years.

Big Pharma Stock #10: Novo Nordisk (NVO)

Novo Nordisk A/S ADR is a large global pharmaceutical company headquartered in Denmark. The company focuses on two core business segments: Diabetes & Obesity Care and Biopharmaceuticals.

The Diabetes & Obesity Care segment manufactures insulin, related delivery systems, oral antidiabetic products, and products to treat obesity. The Biopharmaceuticals segment manufactures products for hemophilia and other chronic diseases.

Novo Nordsk derives ~55% of revenue from insulin drugs. The company’s products are marketed in 170 countries but approximately 48% of net sales are from North America and the rest is international sales. Total revenue was nearly $21B in 2020.

Novo Nordsk reported excellent Q2 2021 results on August 4th, 2021. Companywide sales were up 5% in Danish kroner to $10.54 billion and diluted earnings per share rose 12% to $1.69 yearoveryear.

Source: Investor Presentation

Diabetes & Obesity sales increased 5% driven by increases in Xultophy (longacting insulin), premix insulins, Fiasp (fastacting insulin), Ozempic (GLP1), Rybelsus (GLP1), and hemophilia offset by decreases in other drugs. The Biopharmaceuticals segment sales were flat.

Other notable developments include several announcements related to new products. Ozempic was approved in China for Type II diabetes. Novo Nordisk also noted resubmission of semaglutide 2.0 mg in the U.S. with additional data. Wegovy (obesity) was approved in the U.S. Sogroya (growth hormone) was approved in the EU.

The company raised guidance and now expects 10%13% sales growth and 9%12% operating profit growth in 2021.

Based on expected EPS of $3.40, Novo Nordisk shares trade for a P/E of 29.7. This is above our fair value estimate of 22, which is equal to the 10-year average P/E. Therefore, the stock is overvalued. Total returns are estimated at just 1.6% per year through 2026.

Big Pharma Stock #9: Roche Holding AG (RHHBY)

Roche Holding AG (RHBBY) is a researchbased pharmaceutical company headquartered in Switzerland. Roches operating businesses are organized under two divisions. The Pharmaceutical division includes Genentech and Chugai. Genentech is an American biotechnology company, and Chugai is a Japanese biotechnology company.

The Diagnostics division comprises four segments: Centralized and Point Care Solutions, Molecular Diagnostics, Tissue Diagnostics, and Diabetes Care.

The company released the halfyear 2021 sales update on July 22nd, 2021. The group posted a sales increase of 8% at constant currency rates, mainly due to the Diagnostic division’s strong performance, which increased by 50%. The
Pharma division is still feeling the effects of Covid19 while biosimilars significantly affect sales of existing medicines.

However, sales have increased in Europe and are starting to recover in the U.S. as the vaccination rollout progresses. In addition, the Diagnostics division is experiencing accelerated growth at 51% due to the increase in routine testing.

Overall, the company’s sales have rebounded strongly from 2020.

Source: Investor Presentation

Over the past ten years, Roche’s earnings have grown at a CAGR of 4.5%. Healthcare remains a competitive sector, but the main competitive advantage for Roche is its R&D department. In 2020 alone, they launched 15 new diagnostic solutions for COVID19.

In 2021 they have 12 Phase III trials initiated and 18 new molecular entities in late stages. They have also been researching novel techniques to cure diseases such as Alzheimer‘s by utilizing quantum computing.

In addition, Roche can accelerate future growth through acquisitions; for example, in 2019, they made a significant acquisition in Spark Therapeutics, and in 2020 they also acquired companies such as Stratos Genomics. As a European dividend aristocrat, Roche has shown resilience to withstand recessions and continue to increase dividends.

However, with a P/E of 22, Roche stock trades above our fair value P/E of 18.1. This means a declining P/E multiple could weigh on shareholder returns. Even with 3% annual EPS growth and the 2.5% dividend yield, total returns are expected at just 1.9% per year.

Big Pharma Stock #8: Fresenius Medical Care AG (FMS)

Fresenius Medical Care AG is a diversified healthcare corporation focused on products and services related to renal (kidney) diseases. The company’s services include kidney dialysis, clinical laboratory testing, and kidney diagnostic procedures. Fresenius Medical is headquartered in Germany.

U.S. investors can initiate an ownership stake in Fresenius Medical through American Depository Receipts that trade on the New York Stock Exchange under the ticker FMS. Two ADR shares equals one share of the underlying company.

On 7/30/2021, Fresenius Medical announced second quarter earnings results. Organic growth was higher by 1%. In constant currency, revenue grew 2% for the quarter while adjusted operating income fell 31%.

Revenue for Health Care Services grew 1% organically as gains in the product business were once again partially offset by currency exchange rates and COVID19 related weakness.

Meanwhile, Health Care Product grew 1% due to strength in incenter disposables in the EMEA and AsiaPacific regions and machines for chronic treatment.

Source: Investor Presentation

As with the prior quarter, this was due to the dual negative impacts from the COVID19 impact on the services business and lower reimbursement. EMEA sales were up by 2% (higher by 2% at constant currency) while AsiaPacific grew 10% (up 11% at constant currency) on higher elective procedures.

The company ended the year with 4,125 clinics (up 0.4% sequentially) and 346K patients (up 0.6%).

Analysts expect 2021 EPS of $$2.17. Based on this, shares trade for a 2021 P/E of 17.8, above our fair value estimate of 16. This means the stock is overvalued.

We feel that shares of FMS can offer shareholders an average annual return of 5.9%. This is based on earnings growth (6%), dividend yield (4%) and a significant multiple reversion (-4.1%).

Big Pharma Stock #7: Johnson & Johnson (JNJ)

J&J is a global healthcare giant. It has a market capitalization above $400 billion, and generates annual revenue of more than $81 billion. Today, J&J manufactures and sells health care products through three main segments:

It has a diversified business model, with strong brands across its three core operating segments. A breakdown of each segment’s performance in the second quarter can be seen in the image below:

Source: Investor Presentation

On 7/21/2021, Johnson & Johnson released second quarter earnings results for the period ending 6/30/2021. Revenue increased 27.1% to $23.3 billion, which was $770 million above what analysts had anticipated.

Adjusted earningspershare of $2.48 was an $0.81, or 49%, improvement from the prior year and $0.19 better than expected. Pharmaceutical sales remain strong, with revenue growing 17.2% yearoveryear.

Johnson & Johnson also provided updated guidance for the year. The company now expects to earn $9.50 to $9.60 per share in 2021, up from $9.42 to $9.57 previously. At the midpoint, this would be a 19% increase from 2020.

J&J has increased its dividend for 58 consecutive years, making it a Dividend King. You can see all 32 Dividend Kings here.

The stock yields 2.4% right now. In addition, we expect approximately 6% annual earnings-per-share growth over the next five years.

Lastly, the stock has a P/E of 18, slightly above our fair value P/E estimate of 17. All together, we expect total returns of 7.0% per year for J&J stock.

Big Pharma Stock #6: AbbVie Inc. (ABBV)

AbbVie is a pharmaceutical company spun off by Abbott Laboratories in 2013. Its most important product is Humira, which is now facing biosimilar competition in Europe. Humira will lose patent protection in the U.S. in 2023.

Even so, AbbVie remains a giant in the healthcare sector, with a large and diversified product portfolio.

Source: Investor Presentation

AbbVie reported its second quarter earnings results on July 30. Revenue of $14.0 billion rose 34% from the previous year’s quarter. AbbVie’s revenues were positively impacted by healthy growth from Skyrizi and Rinvoq, but even more so by the addition of Allergan, which was acquired by AbbVie in May 2020.

AbbVie earned $3.11 per share during the second quarter, which was 33% more than the company’s earningspershare during the previous year’s quarter. AbbVie’s earningspershare also beat the consensus analyst estimate by $0.08. AbbVie’s guidance for 2021’s adjusted earningspershare was updated and raised during the earnings call, the company now expects to earn $12.52 $12.62 per share this year.

AbbVie’s major risk is loss of exclusivity for Humira. Fortunately, the company’s massive research and development platform is a competitive advantage. Research and development expense totaled $6.5 billion in 2020. AbbVie has multiple growth opportunities to replace Humira, particularly in the therapeutic areas of immunology, hematology, and neuroscience.

Based on expected 2021 earnings-per-share of $12.57, AbbVie trades for a price-to-earnings ratio of ~9.6. Our fair value estimate for AbbVie is a price-to-earnings ratio (P/E) of 10. An expanding P/E multiple could boost shareholder returns over the next five years.

In addition, we expect annual earnings growth of 3.0%, while the stock has a 4.4% dividend yield. We expect total annual returns of 8.1% per year over the next five years.

Big Pharma Stock #5: Novartis AG (NVS)

Novartis researches, develops and markets products to improve patients’ health. The company’s Innovative Medicines division offers medicines in the areas of oncology, cardiovascular, dermatology, respiratory and several others. Novartis’ Sandoz division markets generic drugs. Novartis has annual sales of more than $52 billion.

Novartis is incorporated in Switzerland, but U.S. investors have access to the company through an American Depositary Receipt, or ADR. Novartis reported second quarter results on 7/21/2021. Revenue grew 14.2% to $12.96 billion, beating expectations by $550 million.

Adjusted earningspershare of $1.66 was a $0.30, or 22%, increase from the prior year and $0.17 above estimates. Excluding COVID19 related destocking, revenue and operating income are both estimated to have increased 10%.

New products fueled the company’s growth in the 2021 first half.

Source: Investor Presentation

Innovative Medicines grew 10% due to strength in product volumes. Volume growth of 13% was partially offset by lower prices. Cosentyx, which treats plaque psoriasis and is the company’s top selling product, was higher by 21% due to high demand in U.S., Europe and China. Entresto, which is used to treat chronic heart failure, was up 46% due to higher market share.

Tafinlar + Mekinist, which treats melanoma, was up 10% due to higher demand in adjuvant melanoma. Sales for Promacta/Revolade, which helps lower the risk of bleeding, grew 18% as the product is now a firstline treatment in the U.S for severe aplastic anemia.

Meanwhile, Kymriah, used to treat patients with acute lymphoblastic leukemia that have relapsed, increased 19% as the product had gains in Europe and emerging markets. Sandoz sales increased 5% as this segment has begun to stabilize. Analysts expect Novartis to earn $6.19 in 2021.

Based on this EPS forecast, shares of Novartis trade for a P/E of 15.1. Our fair value estimate is 16. In addition to an expanding P/E multiple, Novartis stock yields 3.5% while we also expect 4% annual EPS growth, leading to total annual returns of 8.7% per year.

Big Pharma Stock #4: Merck & Co. (MRK)

Merck is a global pharmaceutical giant. The pharmaceutical business offers human health products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, diabetes, women’s health, and more. The animal business develops, manufactures, and markets a range of veterinary products.

Merck reported second quarter earnings on July 29th, and results were weaker than expected. The company reported sales from continuing operations of $11.4 billion, a 22% improvement year-over-year. Excluding gains from forex translation, sales were up 19% as the company continues to recover from the demand dip associated with the pandemic in 2020.

Merck’s oncology segment performed very well last quarter.

Source: Investor Presentation

Keytruda sales were up 23% to $4.2 billion, Gardasil sales were up 88% to $1.2 billion, and animal health sales were up 34% to $1.5 billion.

Earnings-per-share on an adjusted basis were $1.31 in Q2. The company noted it completed its spinoff of certain women’s health assets into Organon, which is now a separate publicly-traded company. Merck received $9 billion in proceeds from the spinoff.

The company now expects about $47 billion in revenue this year, and expects adjusted earnings-per-share of $5.52 at the midpoint of guidance. Merck stock trades for a P/E ratio of 13.9, below our fair value estimate of 15.

We expect 5% annual EPS growth for Merck over the next five years. In addition, shares currently yield 3.4%. Lastly, a small boost from an expanding P/E multiple result in total expected returns of 9.7% per year for Merck stock.

Related: 5 Deep Value Dividend Stocks For Annual Portfolio Rebalancing

Big Pharma Stock #3: Gilead Sciences (GILD)

Gilead Sciences is a researchbased biopharmaceutical company that operates primarily in the U.S. but has significant revenue generation in Europe and elsewhere globally. The company has a huge slate of drugs, including remdesivir, which made headlines in 2020 as a treatment for COVID19.

Apart from that, Gilead has focused its efforts on hepatitis, liver diseases, and many others. HIV is also a growth area for Gilead.

Source: Investor Presentation

Gilead reported its secondquarter earnings results on July 29th. Revenue of $6.2 billion increased 21% compared to the previous year’s quarter. Gilead’s hepatitis C franchise continued to shrink, but Gilead’s other businesses produced growth.

The most meaningful growth driver was Gilead’s COVID therapy Veklury (remdesivir), which generated revenues of $830 million during the quarter, making it one of Gilead’s major drugs during the quarter.

Earningspershare of $1.87 during the second quarter came in easily above the consensus estimate. Gilead also tightened its revenue guidance range for 2021 with a midpoint of $24.7 billion, and the company now expects earningspershare in a range of $6.90 to $7.25.

Gilead has a 2021 P/E just above 10, while our fair value estimate is 11. In addition to a small positive bump from an expanding P/E, returns will consist of expected EPS growth (5%) and the 4% dividend yield.

Big Pharma Stock #2: Amgen Inc. (AMGN)

Amgen is the largest independent biotech company in the world. Amgen discovers, develops, manufactures, and sells medicines that treat serious illnesses. The company focuses on six therapeutic areas: cardiovascular disease, oncology, bone health, neuroscience, nephrology, and inflammation.

Amgen generates annual revenue of more than $25 billion. Amgen reported secondquarter earnings results on 8/3/21. Revenue increased 5.2% to $6.5 billion, beating estimates by $80 million. Adjusted earningspershare of $4.38 per share, increased 4.3% from the same quarter last year. Adjusted earningspershare was $0.37 above expectations.

Prolia was a standout performer last quarter for Amgen.

Source: Investor Presentation

Growth products such as Prolia and Repatha more than offset weak performance among certain legacy products. Sales for Enbrel, which treats rheumatoid arthritis and remains Amgen’s top grossing product, declined 8%, extending the yearoveryear declines to five consecutive quarters.

For 2021, Amgen reiterated expectations for revenue of $25.8 billion to $26.6 billion, while adjusted earningspershare are still expected in a range of $16.00 to $17.00

We expect 9% annual earningspershare growth over the next five years for Amgen. This earningspershare growth will be achieved through a combination of rising revenue as well as share repurchases.

While Amgen is struggling with weak sales for legacy products such as Neulasta and Enbrel, new products are generating growth. For example, the osteoporosis drug Prolia had sales growth of 24% in the second quarter as volumes rose 20%. Prolia is now Amgen’s secondlargest product by sales. Sales for cholesterol drug Repatha increased 43% as volumes rose 49%.

Lastly, share buybacks will boost earningspershare growth. Amgen repurchased 6.5 million shares at an average price of $246 during the quarter. The company has $3.9 billion, or ~3% of its market capitalization, remaining under its existing share repurchase authorization.

With a P/E of 13.6, we believe Amgen is fairly valued. Expected returns of 11.6% per year will be comprised mostly of projected EPS growth and the 3.2% dividend yield, partially offset by a small reduction in the P/E multiple.

Big Pharma Stock #1: Bristol-Myers Squibb (BMY)

Bristol-Myers Squibb is a leading drug maker of cardiovascular and anti-cancer therapeutics, with annual revenues of about $42 billion.

The past year has seen the company transform itself, due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.

The end result is that Bristol-Myers Squibb is now an industry giant, which continues to generate strong results even during the coronavirus pandemic.

Source: Investor Presentation

Revenue grew 15.5% to $11.7 billion, coming in $470 million better than expected. Adjusted earningspershare of $1.93 compared favorably to adjusted earningspershare of $1.63 in the prior year and was $0.03 above estimates. U.S. revenues improved 14% to $7.5 billion while international was up 18%. Currency exchange was an 8% tailwind to results.

For the quarter, Revlimid sales increased 11% to $3.2 billion due to recovery to preCOVID levels as well as longer treatment duration. Eliquis, which prevents blood clots, grew 29% to $2.8 billion due to ongoing strength in demand in both U.S. and international markets. Eliquis has become the top oral anticoagulant in several international countries since 2019 and had more than $9 billion in sales last year.

Opdivo, which treats cancers such as advanced renal carcinoma, returned to growth, with sales improving 16% to $1.9 billion due to new launches for use. Revenue for Orencia, which treats rheumatoid arthritis, grew 9% to $814 million. BristolMyers reaffirmed its guidance and expects adjusted earningspershare in a range of $7.35 to $7.55 for 2021. We expect 3% annual earnings growth over the next five years for BMY.

The company’s recently announced $2 billion addition to its share repurchase is another positive catalyst for earnings-per-share growth.

Based on expected EPS of $7.45, shares of BMY trade for a forward P/E ratio of 9.2. Our fair value P/E estimate is a P/E of 13-14, which is more in-line with the pharmaceutical peer group. Lastly, BMY has a 2.9% dividend yield, leading to total expected returns of 13.4% per year over the next five years.

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