Given its better prospects, we believe that AbbVie stock (NYSE: ABBV) is currently a better pharmaceutical pick over Johnson & Johnson stock (NYSE: JNJ). Both AbbVie and J&J trade at 15x forward expected earnings. However, we think that the new drugs that are gaining market share will drive a gap in valuation in favor of ABBV over the coming years. There is more to the comparison, and in the sections below, we discuss why we think ABBV will outperform JNJ in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.
1. AbbVie Stock Has Outperformed JNJ
ABBV stock has seen strong gains of 85% from levels of $90 in early January 2021 to around $165 now, vs. an increase of about 10% for JNJ over this period. In comparison, the broader S&P500 index is up 55% over this roughly four-year period. However, the changes in these stocks have been far from consistent. Returns for ABBV stock were 32% in 2021, 24% in 2022, and 0% in 2023, while those for JNJ were 11%, 6%, and -9%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ABBV underperformed the S&P in 2023 and JNJ underperformed the S&P in 2021 and 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 CVS, UNH, and PFE, 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. J&J’s Revenue Growth Is Better
J&J has seen its revenue rise 11.4% from $78.7 billion in 2021 to $87.7 billion over the last twelve months. On the other hand, AbbVie’s sales have declined by 1.2% from $56.2 billion to $55.5 billion over this period.
Johnson & Johnson’s revenue growth is being led by higher sales for both of its segments – pharmaceuticals and medical devices. J&J’s multiple myeloma treatment – Darzalex – and the autoimmune drug – Stelara – have been the key growth drivers for the company’s pharmaceuticals business in the recent past. Some of the company’s new drugs, including Carvykti – a multiple myeloma treatment, and Spravato – an antidepressant – have been gaining market share.
On the flip side, though, J&J also has some relatively older drugs that face generic competition and have seen their sales fall. For example, Remicade sales have declined by 48% between 2021 and 2023. Also, growth in the sale of pharmaceuticals will be weighed down in the coming years due to the loss of the U.S. market exclusivity for Stelara in 2025. Stelara is one of the top-selling drugs for J&J, with sales of $11 billion in 2023. Stelara sales were down 7% y-o-y in Q3’24, and we expect the decline to be more profound from next year. Beyond pharmaceuticals, J&J’s medical devices business has been doing well — especially Cardiovascular Care, which has benefited from the Abiomed acquisition (J&J acquired Abiomed in 2022).
AbbVie’s revenue decline can be attributed to the loss of market exclusivity for its top-selling drug – Humira. Humira’s sales peaked at $21.2 billion in 2022, before falling 32.2% y-o-y to $14.4 billion in 2023. For the nine-month period ending Sep 2024, Humira sales plunged another 34% to $7.2 billion.
AbbVie, to some extent, is able to 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 nine-month period ending September 2024, Skyrizi and Rinvoq continued their market share gains, with sales rising around 50% y-o-y to over $12 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. AbbVie acquired Cerevel Therapeutics for $8.7 billion earlier this year, giving it rights to Emraclidine, which recently failed to meet its mid-stage clinical trials. [1] It is currently in the process of acquiring Aliada Therapeutics for $1.4 billion, primarily for its Alzheimer’s treatment in the pipeline.
Looking forward, we expect both AbbVie and J&J’s sales to rise at a mid-single-digit average annual rate over the next few years.
3. J&J And AbbVie Offer Similar Profitability
J&J’s operating margin has improved slightly from 26.6% in 2021 to 27.5% in 2023, while AbbVie’s operating margin declined from 31.9% to 23.5% over this period. Looking at the last twelve-month period, J&J’s operating margin of 26.1% aligns with AbbVie.
J&J’s margin decline over the recent quarters can partly be attributed to a one-time special charge and acquired IPR&D. It has cut its 2024 adjusted earnings outlook to $9.91 per share, versus $10.05 earlier, primarily due to the costs associated with the V-Wave acquisition. J&J reported adjusted earnings of $9.92 per share in 2023.
For AbbVie, the decline in margin, clubbed with expenses related to IPR&D and milestones, has weighed on its bottom line lately. For the full-year 2024, the company expects its adjusted earnings per share to be in the range of $10.90 and $10.94, compared to a figure of $11.11 in 2023.
4. J&J Has A Better Financial Position Than AbbVie
Looking at financial risk, J&J fares better, with its 10% debt as a percentage of equity lower than 24% for AbbVie. Furthermore, J&J’s 11% cash as a percentage of assets is higher than 5% for the latter, implying that J&J has a better debt position and more cash cushion.
5. The Net Of It All
We see that J&J has demonstrated better revenue growth, is more profitable, and has a better financial position. But, looking at the prospects, we believe AbbVie is the better choice of the two.
JNJ stock currently trades at 15x its forward expected earnings of $9.95 per share (Trefis estimate), compared to the stock’s average P/E ratio of 17x over the last three years. We estimate Johnson & Johnson’s Valuation of $172 per share, reflecting over 10% upside from its current levels of $153, and reflecting a 17x P/E ratio. We don’t see any reason to expand the valuation multiple for JNJ stock, given the Stelara overhang.
ABBV stock also trades at 15x its forward expected earnings of $10.94 per share (consensus estimate), compared to the stock’s average P/E ratio of 12x over the last three years. However, in the case of ABBV, we think a higher valuation multiple seems justified, even beyond 15x, given the market share gains for its new drugs.
AbbVie appears to be combating well with the loss of sales from Humira. Rinvoq and Skyrizi will likely continue to see market share gains – leading sales growth over coming years. Skyrizi and Rinvoq’s combined annual peak sales are expected to be a whopping $32 billion. Despite Humira’s patent loss, we think AbbVie would be able to grow its sales and earnings – making a case for an upward revision in valuation multiple. Notably, the $205 average of analysts’ price estimate for ABBV, reflects over 20% upside from its current levels of around $165.
While ABBV stock may outperform JNJ stock in the next three years, it is helpful to see how Johnson & Johnson’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates