Which Drug Stocks have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

Stocks with improving earnings metrics are worthy of your extra attention. Click here to discover our CHEAT SHEET stock picks now!

Here’s your Cheat Sheet to how the top 5 drug stocks rank via earnings trends:

Forest Laboratories Inc. (NYSE:FRX): Current Price $36.77

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 3,836 3,923 4,193 4,420 4,586
Diluted EPS ($) 3.06 2.52 2.25 3.59 3.57

Forest Labs reported improving sales every year from 2008 through 2012. EPS, however, has remained unchanged over the last two years.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 1,209 1,056 821.13 760.64 722.69
Diluted EPS ($) 1.04 0.72 0.21 0.08 -0.58

Forest is going downhill on its quarterly numbers. Both revenue and EPS have plunged and the latter was negative in the latest quarter. That’s a sign to strictly avoid this stock…

Pfizer Inc. (NYSE:PFE): Current Price $26.54

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 48,420 48,300 49,270 67,060 67,420
Diluted EPS ($) 1.17 1.20 1.23 1.02 1.27

Sales have grown over the last three years, yet EPS was more-or-less flat if you accept the pullback in 2010.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 16,610 17,830 15,400 15,060 13,980
Diluted EPS ($) 0.48 0.18 0.24 0.43 0.43

Sales are showing a drooping trend over the last three quarters. However, EPS remained virtually unchanged over the last two. Not the best drug manufacturer here…

AstraZeneca PLC (NYSE:AZN): Current Price $48.99

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 29,560 31,600 32,800 33,270 33,590
Diluted EPS ($) 3.73 4.20 5.19 5.57 7.30

Steady growth in both revenue and and EPS here. AstraZeneca looks promising…

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 8,213 8,656 7,349 6,660 6,682
Diluted EPS ($) 2.56 1.16 1.28 1.27 1.21

But things are not so bright on the quarterly front. Sales are stagnant and EPS has fallen during the last two quarters…

Merck & Co. Inc. (NYSE:MRK): Current Price $42.98

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 24,200 23,850 27,430 45,990 48,050
Diluted EPS ($) 1.49 3.63 5.65 0.28 2.02

Revenue at Merck has more than doubled over 2008 levels but this has probably been achieved at the cost of margins. Though EPS has fallen over that period, we see a nice jump in EPS in 2011.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 12,020 12,290 11,730 12,310 11,490
Diluted EPS ($) 0.55 0.48 0.56 0.58 0.56

Quarterly sales are erratic over the last five quarters and EPS has remained unchanged. We need more promising companies…

Mylan, Inc. (NASDAQ:MYL): Current Price $28.00

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 2,179 5,138 5,093 5,451 6,130
Diluted EPS ($) -4.53 -1.10 0.30 0.68 1.22

Mylan turned the corner in 2009 and returned to profitability. Sales and EPS have jumped since then. A company to watch…

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 1,576 1,531 1,592 1,692 1,810
Diluted EPS ($) 0.36 0.30 0.30 0.33 0.51

Mylan stepped on the gas the last three quarters. Both revenue and EPS have shown a rising trend.

Conclusion

Obviously, Mylan has put up the best show among the drug stocks here with a strong upside visible across both its annual and quarterly performance. It passes┬áthe “E-Squared” investment analysis with flying colors.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!