Given its better valuation, we believe that Pfizer stock (NYSE: PFE) is currently a better pick than its industry peer – AbbVie stock . PFE stock trades at a much lower multiple of 11x forward, versus 20x for ABBV, and we think this gap in valuation will narrow in favor of Pfizer in the coming years. Although Pfizer has seen better revenue growth in recent years, AbbVie is more profitable. There is more to the comparison, and in the sections below, we discuss why we think Pfizer will outperform AbbVie in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.
1. AbbVie Stock Has Fared Much Better Than Pfizer
PFE stock has seen little change in the last three years, while ABBV stock has seen strong gains of 115% from levels of $90 in January 2021 to around $195. This compares with an increase of about 45% for the S&P 500 over this roughly three-year period. However, the changes in these stocks haven’t been consistent. Returns for PFE were 67% in 2021, -10% in 2022, and -41% in 2023, while that for AbbVie were 32%, 24%, and 0%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that both PFE and ABBV underperformed the S&P in 2023.
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
2. Pfizer Has Seen Better Revenue Growth
Pfizer’s revenue rose at an average annual rate of 25.6% from $41.7 billion in 2020 to $58.5 billion in 2023, while AbbVie’s revenue grew at an average rate of 6.5% from $45.8 billion to $54.3 billion over this period.
Pfizer’s revenue over 2021 and 2022 surged due to a very high demand for its Covid-19 vaccine and treatment. But this trend reversed in 2023, with its total sales falling a large 42% y-o-y, amid lower Covid-19 vaccine demand. Lately, the company is facing increased competition for its blockbuster vaccine – Prevnar – which saw its sales growth slow to 1.6% last year versus 20.2% growth in 2022. On the positive side, a strong uptick in Vyndaqel and Abrysvo has aided the overall sales growth lately. Pfizer is also benefiting from its Seagen acquisition, which is expected to add $10 billion to the company’s top-line by 2030, compared to the $3 billion contribution expected in 2024.
AbbVie’s revenue growth has been buoyed by its Allergan acquisition in 2020. The company is best known for its blockbuster drug – Humira – used to treat rheumatoid arthritis and Crohn’s disease, among others. Humira’s sales peaked at $21.2 billion in 2022, before falling 32.2% y-o-y to $14.4 billion in 2023. This can be attributed to the biosimilar competition.
AbbVie, to some extent, can combat the loss of revenue from Humira by market share gains for some of its relatively new drugs, primarily Skyrizi, and Rinvoq. These drugs are used to treat plaque psoriasis and rheumatoid arthritis. For perspective, these two products garnered $11.7 billion in 2023, reflecting a solid 53% y-o-y growth. The sales of its anti-depressant – Vraylar – also spiked 35% y-o-y to $2.8 billion in 2023. For the six-month period ending June 2024, Skyrizi and Rinvoq continued their market share gains, with sales rising 50% y-o-y to over $7 billion.
AbbVie is also looking at inorganic growth. After its acquisition of Allergan in 2020, it acquired ImmunoGen for $10.1 billion this year, giving it rights to Elahere — an ovarian cancer treatment – with estimated peak sales of over $2 billion.
Looking forward, we expect both Pfizer and AbbVie’s sales to rise at a mid-single-digit average rate for the next three years.
3. AbbVie Is More Profitable
Pfizer’s reported operating margin declined from 21.2% in 2020 to 5.7% in 2023, while that for AbbVie contracted from 27.8% to 24.9% over this period. Pfizer incurred restructuring costs and acquisition related charges associated with Seagen that has weighed on its margin. Pfizer is working on a cost-cutting initiative, targeting $4 billion in savings by the end of this year. This will help the company expand its margin profile.
4. AbbVie Fares Better In Terms of Financial Risk
Looking at financial risk, we believe AbbVie has an edge over Pfizer. Its 20% debt as a percentage of equity is lower than 41% for Pfizer. Also, its 9% cash as a percentage of assets is higher than 3% for Pfizer. This implies that AbbVie has a better debt position and more cash cushion.
5. The Net of It All
We see that AbbVie is more profitable and offers lower financial risk than Pfizer. Now, looking at prospects, we believe Pfizer is the better choice of the two, given its better prospects and valuation. Pfizer’s second-quarter results for this year were positive for the company, reflecting a 3% y-o-y rise in sales, despite lower contribution from Covid-19 products. Excluding these products, sales were up 14%. Furthermore, Pfizer’s cost-cutting initiative will bolster its earnings growth. At its current levels, PFE stock is trading at 11x forward expected earnings of $2.62 on a per share and adjusted basis in 2024. The 11x figure is much lower than the stock’s average P/E ratio of 15x seen over the last five years.
In comparison, at its current levels of around $195, AbbVie stock trades at 18x expected 2024 earnings of $10.88 per share. This compares with the 12x average P/E multiple for ABBV seen over the last five years. This implies that PFE stock has some room to grow, while ABBV stock looks fully priced, in our view.
While PFE may outperform ABBV in the next three years, it is helpful to see how Pfizer’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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