To The Moon

• Pfizer beat on the top and bottom lines and the management raised its full-year revenue guidance.
• AmerisourceBergen reported an impressive quarter with a earnings and revenue beat.
• As demand falls, BioNTech still reported a strong quarter as management looks to pivot the business to its expanding drug pipeline.
• Medtronic reported a mixed quarter that was coupled with a cautious outlook from management.

The healthcare and biotechnology sectors continue to be areas where investors continue to hide from the sell-off in the technology-heavy NASDAQ index. The third quarter earnings showed that healthcare-related stocks continue to be resilient as companies pivot from the pandemic to a sense of normalization. Healthcare continues to be a secular growth winner as the population ages and demand for the industry continues to be strong. The stock positions in the biotechnology and healthcare sectors in our portfolio include Pfizer (PFE), AmerisourceBergen (ABC), BioNTech SE (BNTX), and Medtronic Plc (MDT).

Pfizer (PFE): The pharmaceutical giant reported earnings of $1.78/share (beat WallStreet estimates by $0.38) and revenue of $22.64 billion (beat WallStreet estimates by $1.54 billion). Even though we reduced estimates for COVID-19 vaccine demand, Pfizer still beat our estimates of $1.47/share on $21.2 billion of revenue. Pfizer reported a revenue decline of 6% as the vaccine rollout for COVID-19 starts to wane from governments. The company highlighted that it raised its revenue guidance to round out the year from the $98-$102 billion range to the $99.5-$120 billion range. The raised guidance is all thanks to the extra COVID-19 vaccine and oral pill orders.

In 2022, Pfizer has spent over $15 billion on research & development and M&A activity as the company looks to bolster its drug pipeline for the future. The company has returned approximately $8.7 billion to shareholders in the form of dividends and the company has $3.3 billion still left over on its share buyback program. Management gave an update on the acquisition integration, upcoming drug pipeline along with the COVID-19 vaccine booster roll in the Fall of 2022. This was a solid quarter for Pfizer as management pivots the company away from the COVID-19 vaccine revenue windfall.

AmerisourceBergen (ABC): The healthcare distributor reported earnings of $2.60/share (beat WallStreet estimates by $0.02) and revenue of $61.2 billion (beat WallStreet estimates by $610 million). AmerisourceBergen missed on earnings and beat on revenue in comparison to our estimates of $2.64/share in earnings and revenue of $60.6 billion. The company posted an impressive revenue beat but we expected more from the earnings side of things. The company reported modest revenue growth of 3.8% showing a strong end to 2022 driven by the U.S. Healthcare growth of 4.7% while International declined by 2.7%. The strong U.S. dollar affected the International business segment coupled with the geopolitical tension and slowdown in Europe.

Management was able to control expenses as total operating expenses rose by only 1.6%. The M&A synergies from AmerisourceBergen’s acquisitions of PharmaLex and Alliance Healthcare are still being produced with the integration of these purchases. The total revenue for the fiscal year 2022 was $238.6 billion on $1.7 billion of the net profit which enabled management to raise its dividend by 5% to $0.485/share. In terms of outlook, management gave good fiscal year 2023 guidance as they expect to grow revenue by between 5 to 7% along with a free cash flow of $2 billion-plus. Management expects to spend up to $500 million on capital expenditures as the company reinvests back into itself. This was a solid quarter for AmerisourceBergen and management delivered despite being light on earnings. We will continue to hold the stock and we will look to add to the stock when it sells off and the stock yields 2%.

BioNTech SE (BNTX): The biotechnology company reported earnings of €6.98/share (beat WallStreet estimates by €3.59) and revenue of €3.46 billion (beat WallStreet estimates by €1.6 billion). The company reported a revenue decline of 43% as orders for the COVID-19 vaccines have started to slow since most of the population is inoculated. The company keeps putting a good chunk of its vaccine revenue towards growing its drug pipeline as R&D expenses rose 31.3% from a year ago. BioNTech reported a net profit of €1.79 billion down from €3.21 billion.

The company has ample cash & liquidity for some strategic acquisitions/moves with €13.42 billion on the balance sheet. Management raised its fiscal year 2022 outlook on the revenue side as the range was lifted from €13–17 billion to €16–17 billion. BioNTech’s drug pipeline looks good as the company works with Pfizer on a shingles vaccine and ramps up its research in immunology with clinical trials coming in 2023. Management thinks its stock is undervalued and repurchased USD$1 billion worth of stock during the quarter and up to USD$7 billion in 2022. This was a surprisingly strong quarter for BioNTech and if the stock breaks the trend we will add to our stock position.

Medtronic Plc (MDT): The medical device company reported earnings of $1.30/share (beat WallStreet estimates by $0.02) and revenue of $7.59 billion (missed WallStreet estimates by $110 million). Medtronic Plc is a new stock position we added to our portfolio as a healthcare play because it is in secular demand as people live longer with higher life expectancies. Medtronic is a big player in the medical device space with products ranging from cardiovascular diseases to diabetes. The company reported a revenue decline of 3% but the company experienced organic revenue of 2%. Medtronic suffered a $500 million negative impact due to the strong U.S. dollar during the quarter.

The company recently closed its small acquisition of Intersect ENT, a company that specializes in ear, nose, and throat conditions. The company’s neuroscience portfolio was up 2%, while all the other segments had contracting revenue. Management needs to execute and does not seem to be benefitting from the easing of COVID-19 cases as other medical procedures start in hospitals. Medtronic’s operating margin contracted from 19.91% to 18.51% as management contends with higher costs and inflationary pressures. Year-to-date free cash flow contracted from $2.41 billion to $1.26 billion because of higher inventory costs. The company ended the quarter with $4.83 billion in cash on the balance sheet.

Management gave a cautious outlook as they expect to report organic revenue of between 3.5% to 4% but the nominal revenue was not mentioned. Management estimated a foreign currency charge of between $1.74–1.84 billion up from the $1.4–1.5 billion range. The stock sold off down 5 plus percent and we will be looking to add to our new position in the name.

Disclosure: Cresco Investments is long Pfizer (PFE), AmerisourceBergen (ABC), BioNTech SE (BNTX), and Medtronic Plc (MDT).

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor(s).