1. Royalty Pharma plc (NASDAQ:RPRX)
Stock Price as of August 16: $27.20
Average Analyst Price Target Upside as of August 16: 58.24%
Royalty Pharma plc (NASDAQ:RPRX) functions as a purchaser of biopharmaceutical royalties and a funder for advancements in the biopharmaceutical sector within the U.S. The company focuses on acquiring and managing royalties and intellectual property that generate revenue in the biopharmaceutical field.
The company collaborates with biotech and pharmaceutical companies to provide the necessary funding for drug development. In return, the company shares in the revenue from the successful commercialization of these new drugs.
It holds royalties for more than 35 approved products, including well-known medications like Vertex Pharmaceuticals’ cystic fibrosis treatments and Imbruvica, a blood cancer drug distributed by AbbVie and Johnson & Johnson. Additionally, its portfolio includes royalties from 14 products still in development, targeting a range of therapeutic areas such as rare diseases, cancer, and neuroscience.
Royalty Pharma (NASDAQ:RPRX) has been covered by 9 analysts and 8 of them have given it a Buy rating. The average price target of $43.05 implies an upside of 58.24% to the stock’s current price, as of August 16. It tops our list of the best defensive stocks to buy now.
The company presents a possibly compelling investment opportunity as it uses its dominant position in the life sciences funding sector well. With a market share of approximately 60% since 2012, it is a leading player in financing life sciences innovations. Over the years, the company has significantly expanded its portfolio, growing from managing just three royalties in the 1990s to deploying over $20 billion in royalties today.
The company’s unique model involves funding drugs that are nearing full approval, which helps manage risks associated with early-stage investments. This approach has allowed Royalty Pharma (NASDAQ:RPRX) to build a strong portfolio centered around some of the most successful drugs in the healthcare industry.
For instance, in the second quarter of the fiscal year, it reported $608 million in portfolio receipts, marking a 12% increase from the previous year. This growth was primarily driven by strong sales in its cystic fibrosis portfolio, as well as revenue from GSK’s Trelegy, Tremfya, and Evrysdi.
Investors might find Royalty Pharma (NASDAQ:RPRX) attractive due to its consistent performance and shareholder-friendly practices. The company’s belief that its intrinsic value exceeds the current stock price led to a significant share buyback program as mentioned in its Q2 earnings call. In Q2 alone, the company repurchased $115 million worth of shares. This move reflects management’s confidence in their capital allocation strategy and their commitment to enhancing shareholder value.
Furthermore, it has already utilized $400 million of the $1 billion repurchase authorization approved by the board in early 2023. It is a proactive approach to returning capital to shareholders, which combined with its substantial market presence and successful royalty investments, solidifies Royalty Pharma’s (NASDAQ:RPRX) position in the industry.
Patient Capital Opportunity Equity Strategy stated the following regarding Royalty Pharma plc (NASDAQ:RPRX) in its Q2 2024 investor letter:
“While Royalty Pharma plc (NASDAQ:RPRX) is in the health care space, it is more like an investment firm that buys royalty assets in the healthcare space. The company has an extremely strong track record, running the business for over 20 years as a private fund before bringing it public. The market opportunity for external royalty funding has only grown as early-stage start-ups need funding and legacy players are looking to lower their debt levels. We think Royalty Pharma is perfectly positioned as the partner of choice. The company is disciplined, maintaining deal internal rate of returns (IRRs) in the low-teens despite the higher interest rate environment. We think as the company continues to deliver as a public company, the market will start paying attention.”
While we acknowledge the potential of Royalty Pharma plc (NASDAQ:RPRX) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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