Investor sentiment has improved this year on expectations of less-aggressive interest rate hikes by the Federal Reserve to tame inflation. However, the ongoing macro uncertainty continues to create confusion about which sectors or companies to invest in.
In the wake of a possible economic downturn, investing in healthcare stocks could be a good idea. Healthcare companies are not completely immune to a recession or macro pressures. However, they are known to escape sharp declines during recessions due to the essential nature of the business.
I used TipRanks’ Stock Comparison Tool to compare the following prominent healthcare stocks and pick the one that Wall Street finds most attractive at current levels.
Abbott Labs (ABT)
2022 was a tough year for Abbott (NYSE:ABT), not only due to macro pressures and currency headwinds but also due to the disruptions at its baby formula facility in Michigan. Furthermore, the company’s medical devices segment was hit by Covid-19 restrictions in China and supply chain issues.
Despite these pressures and falling Covid-19 testing-related sales, Abbott delivered market-beating results for the fourth quarter of 2022. One of the key growth drivers for the company is its FreeStyle Libre continuous glucose monitoring (CGM) system. The product generated over $1 billion in sales in the fourth quarter alone, with U.S. sales rising more than 40%.
Looking ahead, Abbott expects organic sales growth, excluding Covid testing sales, in the high single-digits in 2023. Aside from high-growth products like the FreeStyle Libre, the company is also expected to benefit from recently approved products. This includes Navitor, the latest-generation transcatheter aortic valve implantation system for the treatment of severe aortic stenosis. Abbott is also seeking inorganic growth through strategic acquisitions. It recently announced the acquisition of Cardiovascular Systems, Inc. (NASDAQ:CSII) for about $890 million.
BTIG analyst Marie Thibault feels that this acquisition “is an inexpensive way for ABT to tap into large, high-growth, adjacent market opportunities with CSII’s R&D pipeline in mechanical thrombectomy, intravascular lithotripsy (IVL), drug-coated balloons (DCBs) and mechanical circulatory support (MCS).” Thibault reiterated a “buy” rating for Abbott with a price target of $125. She called it her “top large-cap pick for 2023.”
Wall Street is cautiously optimistic about Abbott Labs. The stock has a “moderate buy” consensus rating based on nine buys, one hold and one sell. At $123.90, the average ABT stock price target suggests 15% upside potential.
Eli Lilly (LLY)
Eli Lilly’s (NYSE:LLY) recently reported mixed fourth-quarter results that failed to impress investors. The company’s adjusted earnings per share ( ) topped expectations, but revenue declined 9% and slightly lagged estimates. Currency headwinds, a substantial drop in sales from Covid-19 antibodies and the loss of exclusivity for cancer medicine Alimta hurt the company’s top line.
Moreover, investors were unhappy with the lower-than-expected sales of Mounjaro, a type-2 diabetes drug launched in June 2022. Nonetheless, Lilly is optimistic about the prospects for Mounjaro and other drugs in its existing portfolio as well as its strong pipeline. Mounjaro is expected to be approved by the U.S. Food and Drug Administration (FDA) for weight loss later this year.
Highlighting the strength of its existing portfolio, Lilly stated that revenue from its key growth products (Verzenio, Mounjaro, Jardiance, Taltz, Trulicity, Retevmo, Emgality, Cyramza, Tyvyt and Olumiant) increased 21% and accounted for 70% of the overall Q4 2022 revenue. It expects to launch four new drugs this year and projects mid-teen revenue growth for its core business.
Morgan Stanley analyst Terence Flynn acknowledges that there is “likely limited upside” to the expectations for the first half of the year. However, he continues to see several catalysts that could drive growth in the second half of 2023 and the years ahead. Flynn increased the price target for Eli Lilly stock to $455 from $440 and reiterated a “buy” rating.
Overall, Wall Street is bullish about Eli Lilly. The stock has a “strong buy” consensus rating backed by 13 buys and two holds. The average LLY stock price target of $406.31 implies nearly 16% upside potential.
CVS Health (CVS)
Leading pharmacy chain CVS Health (NYSE:CVS) has been in the news for two large acquisitions announced over recent months — the Signify Health (NYSE:SGFY) deal announced in September 2022 and the potential takeover of Oak Street Health (NYSE:OSH) that was announced last week. Both deals will likely bolster the company’s position in the primary healthcare space.
Through the $10.6 billion acquisition of Oak Street Health, CVS could gain access to about 600 primary care providers and 169 medical centers across 21 states. The deal comes at a time when CVS’ rivals are aggressively expanding their presence in the primary care market. Walgreens (NASDAQ:WBA)-backed VillageMD acquired Summit Health-CityMD for $8.9 billion, while e-commerce giant Amazon (NASDAQ:AMZN) is acquiring One Medical for $3.9 billion.
Mizuho Securities analyst Ann Hynes expects the Oak Street Health and Signify acquisitions to help CVS generate the “+2% of EPS contribution embedded in long-term EPS targets.” Commenting on the Oak Street Health deal, Hynes said, “The main areas with expected synergy opportunities include OSH patient growth through CVS channels, better retention of Aetna MA [Medicare Advantage] members, and PBM [Pharmacy Benefit Manager] and pharmacy collaboration opportunities.”
While Hynes believes the deal is expensive, she acknowledges that it is in line with the company’s long-term growth strategy for its Health Services business. Hynes reiterated a “buy” rating on CVS stock with a price target of $120.
All in all, CVS earns the Street’s “strong buy” consensus rating, backed by 10 buys and two holds. The average CVS stock price target of $114.75 implies about 28% upside from current levels.
To conclude, healthcare stocks Abbott Labs, Eli Lilly and CVS Health offer attractive long-term growth potential. Currently, Wall Street is very bullish on CVS and estimates higher upside potential in the stock. CVS expects 2023 adjusted EPS in the range of $8.70 to $8.90, reflecting growth of about 5% to 8%. Based on its strategic acquisitions and other growth initiatives, the company is targeting adjusted EPS of nearly $9 in 2024 and $10 in 2025.
On the date of publication, Sirisha Bhogaraju did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.