Investors remain puzzled due to persistent macro challenges, continued interest rate hikes, and the regional banking crisis. Given the ongoing uncertainties, sectors that are resilient during economic downturns could offer attractive investment opportunities.
While not entirely immune to recessionary conditions, healthcare companies have the ability to navigate a tough macro backdrop due to the essential nature of their products and services. An increased focus on health since the Covid-19 pandemic and technological advancements are key drivers for companies in this space.
With a long-term investment horizon in mind, I used TipRanks Stock Comparison Tool to compare the following healthcare stocks and pick the one that Wall Street expects to generate the most attractive returns.
Johnson & Johnson (JNJ)
Pharma giant Johnson & Johnson (NYSE:JNJ) delivered upbeat first-quarter results and raised its full-year guidance. However, the beat-and-raise quarter was overshadowed by a multibillion-dollar charge to settle thousands of litigations related to JNJ’s talc baby powder. Additionally, the company lowered its 2025 outlook for its pharmaceutical business to $57 billion from $60 billion, citing currency headwinds.
Nevertheless, JNJ sees solid growth potential in its pharmaceutical and MedTech divisions, with a sharpened focus on these businesses following the spinoff of its consumer segment into a separate company called Kenvue (NYSE:KVUE).
Following the Q1 print, Raymond James analyst Jayson Bedford reduced the price target for JNJ stock to $181 from $185 and reiterated a “buy” rating. The analyst highlighted strong first-quarter results, the strength in its consumer division, and improving MedTech procedure volumes.
That said, the analyst thinks that concerns around talc litigations, the timing and read-through of the Mariposa lung cancer drug trial, and the potential impact of the loss of exclusivity of immunology drug Stelara could drag down the stock.
With five buys and 12 holds, Wall Street has a “moderate buy” consensus rating on Johnson & Johnson. The average price target of $179.95 implies upside potential of 10.5% from current levels. Last month, JNJ hiked its quarterly dividend by 5.3% to $1.19. This marked 61 consecutive years of increases for the dividend king.
Eli Lilly (LLY)
Eli Lilly’s (NYSE:LLY) adjusted earnings per share plunged 38% to $1.62 in the first quarter and lagged analysts’ expectations. The bottom line was hit by lower revenue from Covid-19 antibodies.
Nevertheless, investors ignored the weakness in earnings and focused on the favorable update related to the Surmount-2 Phase 3 trial for the weight loss drug Tirzepatide. Additionally, the company raised its full-year revenue and earnings guidance to reflect a lower impact from currency headwinds.
It is worth noting that Tirzepatide, which was approved under the name Mounjaro by the Food and Drug Administration (FDA) in 2022 for Type-2 diabetes, generated $568.5 million in sales in the first quarter. If approved for weight loss, the drug is expected to contribute billions of dollars, given the rapid rise in obesity and diabetes. Further, investors are excited about the prospects of the company’s Alzheimer’s drug candidate Donanemab.
Truist Financial analyst Robyn Karnauskas increased the price target for Eli Lilly stock to $430 from $421 and maintained a “buy” rating following the Q1 results. Noting Mounjaro’s upbeat sales and positive Surmount-2 data, the analyst raised her Mounjaro peak 2032 sales estimate to $33 billion from $25 billion.
Wall Street’s “moderate buy” consensus rating for Eli Lilly is based on 13 buys, three holds, and one sell. Given the 18% rise in the stock so far in 2023, the average price target of $396.53 suggests a possible downside of 8% from current levels.
Teladoc (TDOC)
Virtual healthcare company Teladoc (NYSE:TDOC) witnessed stellar growth rates during the pandemic-induced lockdowns and mobility restrictions. However, the company fell out of favor following the reopening of the economy and also suffered due to rising competition.
Teladoc’s first-quarter results provided some relief to investors following a weak 2022. The company’s revenue grew 11% to $629 million, driven by its BetterHelp mental health offering and the performance of the Teladoc Health Integrated Care segment. Further, the loss per share reduced considerably to 42 cents compared to $41.58 in the prior-year quarter, which was adversely impacted by a $6.6 billion impairment charge.
Piper Sandler analyst Jessica Tassan reiterated a “buy” rating on TDOC stock and a price target of $40 following the recent results. The analyst believes in the company’s ability to beat adjusted EBITDA estimates for the second and third quarters, given that the comparable periods in 2022 faced “irrational competitive activity” and lower advertising yields.
Tassan opined that the business backdrop for Teladoc is returning to normal in 2023. She noted that her full-year adjusted EBITDA estimate of $309.6 million is above the midpoint of the company’s guidance. “Favorable member retention and/or ad pricing could produce upside to our FY23 adjusted EBITDA estimate,” concluded Tassan.
With six buys and 15 holds, Teladoc earns a “moderate buy” consensus rating. The average price target of $30.26 indicates nearly 18% upside potential.
To conclude, Wall Street is cautiously optimistic about Johnson & Johnson, Eli Lilly and Teladoc due to tough macro conditions and certain company-specific risks. As of now, analysts see higher upside potential in growth stock Teladoc compared to the well-established healthcare giants.
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.