3 Dividend-Paying Large Cap Pharma Stocks To Consider For 2020
Zacks Investment Research | Dec 27, 2019 04:15AM ET
The stock market continued its end of the year rally Friday as the three major indices all hit new intraday highs. The tech-heavy NASDAQ hit 9,000 for the first time Thursday after Amazon (NASDAQ:AMZN) stock popped on a solid holiday shopping season.
The strong end to the year has helped lift the S&P 500 over 28% in 2019. But investors now wonder what might be in store for equities in the upcoming year.
Let’s take a look at a few stocks in the large cap pharma industry, which ranks in the top 9% of our over 250 Zacks industires, that look poised to have a strong 2020.
AbbVie (NYSE:ABBV) has been able to outpace the S&P 500 since its spinoff from Abbott Labs (NYSE:ABT) in early 2013. AbbVie’s cash cow is Humira, which accounts for about 60% of its total revenue. The company’s dependence on Humira has been a cause for concern with many investors, as its patent expired in Europe this year. This caused the decline in Humira sales.
The firm’s US patent is also scheduled to expire in 2023. But AbbVie has started to strategically prepare itself for the emergence of biosimilars in the US market. The company currently boasts a diverse portfolio of products that consists of oncology medicines such as Imbruvica and Venclexta and immunology products like Skyrizi and Rinvoq.
In addition, AbbVie expects its Allergan (NYSE:AGN) acquisition to close by the end of the first quarter of 2020, which will further diversify its portfolio. AbbVie has also been an income investor-friendly stock as it has averaged over a 24% annual hike to its dividend since its inception.
ABBV stock currently sports a dividend with a hefty 4.76% yield and trades at 10X its forward earnings, which is below the industry average of 15X. Our consensus fiscal 2020 estimates call for earnings to grow over 5.2% to $9.41 per share and for net revenue to increase 8.3% to $36.1 billion.
Johnson & Johnson (NYSE:JNJ) is the largest pharmaceutical company in the world in terms of market cap. The pharma titan has been hit recently with an onslaught of legal headwinds from its alleged involvement in the opioid crisis to its alleged harmful talcum powder. However, despite the recent litigation, the firm’s diversified operations in the healthcare industry are unrivaled. Johnson & Johnson’s pharmaceutical portfolio is well diversified across the oncology and immunology fields.
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In the immunology segment, the firm’s key growth drivers are Stelara and Tremfya, which climbed 30% and 69% in the third quarter, respectively. Meanwhile, Imbruvica is at the forefront of the company’s oncology portfolio and saw an increase of 31% in the third quarter.
In addition to JNJ’s impressive pharmaceutical portfolio, the firm also operates in other channels such as medical devices and its consumer segment, which includes the popular skin care treatment Neutrogena. This large cap pharma stock also boasts a dividend with a solid 2.61% yield that has been increased for the past 57 years.
Our fiscal 2020 estimates forecast a top-line rally of 4.2% to $85.5 billion and a bottom-line jump of 4.8% to $9.08 per share. Johnson & Johnson has an average EPS surprise of 4.27% over the past four quarters and sits at a Zacks Rank #2 (Buy).
Merck & Co (NYSE:MRK) is a large cap pharma stock that has put together a solid year as its shares have risen over 19% and have outpaced the industry’s 12% YTD run. This pharmaceutical giant is currently focused on the oncology realm with its crown-jewel, Keytruda. The drug has been approved for a plethora of cancers including lung cancer and melanoma. The company’s top-line is also driven by its vaccine business, which includes its HPV vaccine Gardasil/Gardasil 9.
In the most recent quarter, Keytruda sales soared 62% to roughly $3.1 billion and Gardasil/Gardasil 9 sales climbed 26% to $1.32 billion. Keytruda is expected to be Merck’s bread and butter for the foreseeable future as the drug is projected to become the world's bestselling drug by 2025.
Merck also offers a dividend with a healthy 2.67% yield. The stock currently trades at about 16X its forward earnings, which is just below the S&P 500 average of 18X. Our fiscal 2020 estimates anticipate an almost 6% top-line hike to $49.8 billion and a bottom-line jump of over 6% to $5.49 per share. MRK’s earnings estimate revisions have trended higher, helping earn the stock a Zacks Rank #2 (Buy).
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