AbbVie vs. Johnson & Johnson: Which Stock is the Better Investment?

In our assessment, AbbVie stock (NYSE: ABBV) emerges as the more favorable choice among pharmaceuticals when compared to Johnson & Johnson stock (NYSE: JNJ). Despite both companies trading at 15x their forward expected earnings, AbbVie is poised to gain a competitive edge thanks to its new drugs capturing market share. Below, we delve into the data and reasoning supporting our prediction that AbbVie will outperform Johnson & Johnson over the next three years, examining aspects like historical revenue growth, returns, and valuation.

1. AbbVie’s Impressive Stock Performance

Since January 2021, ABBV stock has skyrocketed by 85%, rising from $90 to around $165. In contrast, JNJ has only seen a 10% increase over the same timeframe. The broader S&P 500 index has experienced a 55% surge in this period. However, the journey hasn’t been straightforward for either company. ABBV surged by 32% in 2021 and 24% in 2022, but stagnated in 2023, registering zero growth. Conversely, JNJ’s returns were 11% in 2021, six percent in 2022, but fell by 9% in 2023. In comparison, the S&P 500 had a volatile ride, showcasing a strong 27% in 2021, a drop of 19% in 2022, and a solid 24% recovery in 2023, illustrating that both ABBV and JNJ struggled relative to the index in different years.

Over the years, consistently beating the S&P 500 has proven difficult for major stocks, including giants in the Health Care sector like CVS, UNH, and PFE, as well as tech titans such as GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, comprised of 30 stocks, has outperformed the S&P 500 annually during the same timeframe. This consistency raises questions about individual stock performance due to the overall volatility of markets.

2. J&J’s Revenue Growth

Johnson & Johnson has posted impressive revenue growth, with an increase of 11.4% from $78.7 billion in 2021 to $87.7 billion in the past year. In contrast, AbbVie’s revenue dipped 1.2%, declining from $56.2 billion to $55.5 billion during the same time.

The pharmaceutical and medical devices segments have propelled J&J’s revenue growth. Their treatments for multiple myeloma, such as Darzalex, along with the autoimmune treatment Stelara, have acted as key contributors. New drugs, including Carvykti and Spravato, are also securing market share.

However, the company faces challenges with its older drugs, like Remicade, which has seen sales plummet by 48% between 2021 and 2023. Additionally, J&J will lose U.S. market exclusivity for Stelara in 2025, which could further impact sales. Notably, Stelara generated $11 billion in sales in 2023 but is projected to decline substantially.

AbbVie, on the other hand, attributes its revenue drop to losing exclusivity for Humira, its best-selling product. After peaking at $21.2 billion in 2022, its sales fell by 32.2% to $14.4 billion in 2023 and further decreased by 34% in the first nine months of 2024.

Despite these declines, AbbVie is mitigating losses through growth in new drugs, mainly Skyrizi and Rinvoq, which collectively made $11.7 billion in 2023, marking a 53% growth compared to the previous year. Sales of another drug, Vraylar, also saw a significant increase, growing 35% to $2.8 billion in 2023. In the latest nine-month report, these two drugs continued their upward trajectory with combined sales exceeding $12 billion.

AbbVie is also pursuing growth through acquisitions, like its purchase of ImmunoGen for $10.1 billion to obtain Elahere, a treatment for ovarian cancer, and a recent deal for Aliada Therapeutics focused on Alzheimer’s research.

Looking forward, both AbbVie and J&J are expected to experience mid-single-digit average annual sales growth over the next few years.

3. Profitability Comparison

In terms of operating margins, J&J has slightly improved from 26.6% in 2021 to 27.5% in 2023. Meanwhile, AbbVie witnessed a decline from 31.9% to 23.5%. Over the last twelve months, J&J’s operating margin of 26.1% is somewhat comparable to AbbVie.

Part of J&J’s margin decrease is linked to a one-time special charge. The firm has adjusted its 2024 earnings outlook due to costs from the V-Wave acquisition, aiming for $9.91 per share, slightly down from an earlier estimate of $10.05. In comparison, J&J’s adjusted earnings were reported as $9.92 per share in 2023.

For AbbVie, the falling margins, alongside IPR&D expenses, have negatively impacted profits. The company predicts its adjusted earnings per share in 2024 will range from $10.90 to $10.94, a decrease from $11.11 in 2023.

4. Financial Position of J&J

Examining financial risk, J&J holds an advantage with 10% debt relative to equity, significantly lower than AbbVie’s 24%. Additionally, J&J maintains a healthier cash position with 11% of its assets in cash, compared to just 5% for AbbVie, providing J&J a more secure financial cushion.

5. Conclusion: Looking Ahead

While J&J has exhibited better revenue growth, profitability, and financial stability, a closer examination of future prospects suggests AbbVie may be the more attractive option at present.

Currently, JNJ stock trades at 15x its projected earnings of $9.95 per share, based on Trefis estimates, compared to its historical average P/E of 17x over the past three years. We value Johnson & Johnson’s stock at $172 per share, indicating over 10% potential growth from its current price of $153, despite concerns related to Stelara.

ABBV also stands at 15x its expected earnings of $10.94 per share, but AbbVie’s historically lower average P/E of 12x suggests that a higher valuation could be reasonable due to its market share advancements.

AbbVie is effectively managing the transition from Humira, with Skyrizi and Rinvoq likely to continue gaining ground. These drugs combined have potential peak sales reaching $32 billion. Despite challenges ahead, AbbVie exhibits potential for sales and earnings growth warranting an increase in valuation. Analysts’ average price target for ABBV stands at $205, indicating over 20% upside from its current value of around $165.

While projections suggest ABBV could outperform JNJ in the upcoming years, it remains beneficial for investors to evaluate how Johnson & Johnson’s peers stack up on essential metrics. Explore additional comparisons across industries at Peer Comparisons.

[1] Returns as of 11/20/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.