The U.S. healthcare sector is attractive for long-term investors because the industry is set to benefit from a major growth tailwind — the aging population. The U.S. is an aging country with a very large 65+ population. This means demand for healthcare is only set to grow going forward, at a rate above GDP growth.
For investors, the opportunity is to buy quality healthcare stocks that will benefit from this growth. We believe there are many blue-chip stocks in healthcare, that will provide shareholders with long-term growth and dividends. These 3 healthcare stocks are attractive today.
Blue Chip Healthcare Stock: Gilead Sciences
Gilead Sciences (GILD) is a biotechnology company that operates with a focus on antiviral medication and treatments. Its main products include treatments for HIV, Hepatitis B, and Hepatitis C (HBV/HCV), but Gilead has also ventured into other areas such as oncology.
The company generated revenues of $6.6 billion during the first quarter, which was above the analyst consensus estimate. The company’s top line grew by 3% compared to the previous year’s quarter. Gilead’s Hepatitis C franchise continued to shrink, but other businesses showed a better performance. Gilead’s Covid therapy Veklury (remdesivir) generated revenues of $1.5 billion during the quarter, making it one of Gilead’s major drugs during the quarter. This amount was up 5% year over year, being a key factor for Gilead’s overall revenue growth.
Biktarvy, Gilead’s biggest drug in terms of sales volumes, continued to grow during the quarter, generating an attractive 18% sales increase. Gilead generated earnings per share of $2.12 during the first quarter, which was easily above the consensus estimate. Gilead has reiterated its revenue guidance range for 2022 with a midpoint of $24.1 billion, which implies a decline versus the previous year. This is because Gilead’s Covid drug Veklury will likely see its sales shrink considerably during the current year as the pandemic becomes less of a factor.
Gilead has stated that its EPS should fall into a range of $6.20 to $6.70 during the current year. This should be more than enough to continue raising the dividend, as the company’s dividend payout ratio will be approximately 45% for 2022. The shares currently yield 4.7%.
Blue Chip Healthcare Stock: Amgen
Amgen (AMGN) 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 about $26 billion in annual revenues.
Amgen is generating steady growth so far in 2022. First-quarter revenue increased 5.1% to $6.2 billion, beating estimates by $90 million. Adjusted net income of $2.3 billion, or $4.25 per share, compared favorably to adjusted net income of $2.15 billion, or $3.70 per share, in the previous year. Adjusted EPS was $0.12 higher than expected.
Product revenue increased 2% on higher volume for key products. Sales for Enbrel, which treats rheumatoid arthritis and remains Amgen’s top-grossing product, decreased 7% but this was offset by growth across other products. Prolia, which treats osteoporosis and should become the top-grossing product sometime this year, grew 12% due to 10% volume growth and higher average prices. Repatha, which is used to control cholesterol, grew 15% year over year.
Amgen is a recession-resistant company. Its profitability held up very well during the last recession. Companies in the healthcare sector are often recession resistant as people will seek treatment for their health issues regardless of economic conditions. The company also has a very low payout ratio that will allow it to continue to raise its dividend going forward, even in a prolonged recession.
Amgen is the largest biotech company in the world, giving it size and scale over its peers. This allows the company to reduce net selling price on products, such as with Repatha, to take market share. Another key competitive advantage Amgen has over its peers is the company’s ability to bring new products to market. Amgen spent 18.5% of 2021 sales on R&D.
Share buybacks are also a catalyst for Amgen’s EPS growth. Amgen repurchased 24.6 million shares at an average price of $256 during the quarter. The company ended the quarter with $6.5 billion of cash and cash equivalents. Amgen provided guidance for 2022 as well. The company expects $17.00 to $18.00 per share in 2022. This means the dividend payout ratio will be approximately 44% for 2022, leaving plenty of room for future dividend increases. The shares currently yield 3.0%.
Blue Chip Healthcare Stock: Cardinal Health
Cardinal Health (CAH) is one of the “Big 3” drug distribution companies along with McKesson (MCK) and AmerisourceBergen (ABC) . Cardinal Health serves over 24,000 United States pharmacies and more than 85% of the country’s hospitals. The company has operations in more than 30 countries with approximately 46,000 employees. With 34 years of dividend increases, the company is a member of the Dividend Aristocrats Index.
Cardinal Health has seen a meaningful improvement to its financial results so far this fiscal year. In the fiscal third quarter, the company’s revenue grew 14.1% to $44.8 billion, which was $1.64 billion higher than expected. Pharmaceutical sales of $41.4 billion was a 17% increase year over year, while segment profit if $487 million was down 5%. Branded pharmaceuticals drove the revenue increase, but profit was down due to higher expenses and investments in technology.
Earnings are being affected by inflation, but the company remains highly profitable. On an adjusted basis, the company posted earnings of $545 million in the fiscal third quarter, or $1.45 per share, compared to $689 million, or $1.53 per share, in the year ago period.
Cardinal Health again updated its fiscal 2022 outlook, now anticipating $5.15 to $5.25 in adjusted EPS, from $5.15 to $5.50 and $5.60 to $5.90 previously. This should be more than enough to sustain the current dividend payout, and continue to increase the dividend each year.
Cardinal Health has proven to be a solid operator in many ways — strong earnings for the past decade, a growing dividend and ample interest coverage. The dividend payout ratio had ticked up slightly in recent years, but its back to about a third of expected profits. In turn, the company has the ability to repurchase a meaningful number of shares. The shares currently yield 3.4%.
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