The latest inflation data has further aggravated recession worries. With inflation still hovering near its multi-decade high, the odds of the Fed proceeding with its fourth consecutive 75-bps interest rate hike are pretty high. The consequent increase in recession fears has dampened the market sentiment significantly.
However, healthcare companies enjoy demand and margins resistant to inflation and recession. The inelastic demand for healthcare products helps these companies generate stable revenues regardless of inflationary pressures and consumers’ spending cuts amid a recession.
Moreover, the demand for healthcare products and services could rise further due to the increased need to serve aging Baby Boomers and the increasing frequency and severity of chronic conditions.
According to a report published by Health Affairs, national health spending is expected to reach $6.8 trillion by 2030.
Hence, given ongoing macroeconomic turbulence and uncertain outlook, one could make the most of the strong uptrend in healthcare stocks Eli Lilly and Company (LLY), Merck & Co., Inc. (MRK), and Biogen Inc. (BIIB) by investing in them.
Eli Lilly and Company (LLY)
LLY discovers, develops, and markets human pharmaceuticals worldwide. With a market capitalization of $314.88 billion, the company provides diabetes, oncology, neuroscience, and other products.
Over the last three years, LLY has grown its revenue at a 10.3% CAGR, while the company’s EBITDA has grown at a 13.3% CAGR.
For the second quarter of the fiscal year 2022 ended June 30, 2022, LLY’s worldwide revenue stood at $6.49 billion. Excluding revenue from Alimta, the sale of the company's rights to Cialis in China in Q2 2021, and COVID-19 antibodies, the company’s revenue grew 6% year-over-year. LLY’s operating income and net income came in at $1.21 billion and $952.50 million, respectively. Its non-GAAP EPS came in at $1.25.
The consensus revenue estimate of $30.30 billion for fiscal 2023, ending September 2023, represents a 5.2% improvement year-over-year. Also, Street expects LLY’s EPS to grow 16.3% year-over-year to $9.28 during the same period.
LLY’s stock is trading at a premium, indicating high expectations regarding the company’s performance in the upcoming quarters. Regarding forward P/E, LLY is trading at 41.69x, 122.7% higher than the industry average of 18.7x. Also, it is trading at a forward Price/Sales multiple of 10.98 compares to the industry average of 4.25. Continue reading "Health Care Stocks You'll Wish You Bought Sooner"