Which Pharmaceuticals Stock Is A Better Pick: Johnson & Johnson Or Eliquis’ Maker?

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We believe Bristol Myers Squibb stock (NYSE: BMY) is a better pick than its industry peer, Johnson & Johnson  (NYSE: JNJ). J&J trades at a higher valuation of 4.4x trailing revenues, compared to 3.1x for BMS, and this valuation gap will likely narrow over the coming years in favor of BMS, in our view. While BMS has seen better revenue growth in recent years, J&J is more profitable and has a better financial position, as discussed below.

Looking at stock returns, BMY has fared slightly better with -5% returns this year vs. -10% returns for JNJ. However, both have underperformed the broader S&P500 index, up 8%. There is more to the comparison, and in the sections below, we discuss why we believe BMY stock will offer higher returns than JNJ stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Johnson & Johnson vs. Bristol Myers SquibbWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. BMS’ Revenue Growth Is Better

  • BMS’ revenue growth has been much better, with a 23.7% average annual growth rate in the last three years, compared to 5.1% for J&J.
  • While J&J’s medical devices business faced headwinds in 2020 due to the pandemic’s impact, it rebounded in 2021. The pharmaceuticals segment saw a 14% rise in 2021 sales, and the medical devices segment sales were up 18%.
  • BMS’ revenue growth was bolstered by its Celgene acquisition in 2019.
  • If we look at the last twelve-month period, J&J has fared slightly better, with sales growth of 1.2% vs. -0.5% for BMS.
  • The growth for J&J’s medical devices and pharmaceuticals businesses slowed to 1% each in 2022. This can partly be attributed to lower contribution from the Covid-19 vaccine and falling sales for Remicade, which now faces biosimilar competition.
  • Although BMS has benefited from market share gains for some of its drugs, including its anticoagulant – Eliquis – the company faces biosimilar competition for its top-selling drug – Revlimid.
  • Our Johnson & Johnson Revenue Comparison and Bristol Myers Squibb Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, BMS’ revenue is expected to grow faster than J&J’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 3% for J&J, compared to a 10% CAGR for BMS, based on Trefis Machine Learning analysis.
  • J&J’s pharmaceuticals business will likely benefit from market share gains for its cancer drug – Darzalex – and immunology drugs, Erleada and Tremfya. The company is currently in the process of spinning off its consumer healthcare business as a separately traded company – Kenvue – which has already filed for an IPO. The company completed the acquisition of heart pump maker – Abiomed – last year, and it is expected to aid the top-line growth of its MedTech segment.
  • For BMS, its Revlimid sales declined a significant 32% y-o-y to $2.3 billion in 2022. However, Opdivo sales were up 11%, and some of its newly approved drugs, including Abecma, Zeposia, Reblozyl, and Breyanzi, were up between 30% and 80%. Most of these drugs are potentially blockbuster drugs, and as they gain market share, their sales growth will likely more than offset the decline from Revlimid.
  • Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. J&J Is More Profitable 

  • J&J’s operating margin has risen slightly from 24.5% in 2019 to 24.9% in 2022, while BMS’ operating margin declined from 22.6% to 18.0% over this period.
  • Looking at the last twelve-month period, J&J’s operating margin of 25.4% fares better than 19.7% for BMS.
  • Our Johnson & Johnson Operating Income Comparison and Bristol Myers Squibb Operating Income Comparison dashboards have more details.
  • BMS’ free cash flow margin of 28.3% is higher than 22.3% for J&J.
  • Looking at financial risk, J&J fares better with its 9.6% debt as a percentage of equity lower than 27.5% for BMS and its 12.6% cash as a percentage of assets higher than 9.6% for the latter, implying that J&J has a better debt position and more cash cushion.

3. The Net of It All

  • We see that BMS has demonstrated better revenue growth and is available at a comparatively lower valuation multiple. On the other hand, J&J is more profitable and has a better debt position and cash cushion, and this also explains its higher P/S multiple compared to BMS.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe BMS is the better choice of the two, given its lower valuation and better prospects.
  • If we compare the current valuation multiples to the historical averages, BMS fares better, with its stock currently trading at 3.1x trailing revenues vs. the last five-year average of 4.5x. In contrast, JNJ stock trades at 4.4x trailing revenues vs. the last five-year average of 4.9x.
  • Our Johnson & Johnson (JNJ) Valuation Ratios Comparison and Bristol Myers Squibb (BMY) Valuation Ratios Comparison have more details.
  • The table below summarizes our revenue and return expectations for J&J and BMS over the next three years and points to an expected return of 44% for BMS over this period vs. a 10% expected return for J&J, based on Trefis Machine Learning analysis – Johnson & Johnson vs. Bristol Myers Squibb – which also provides more details on how we arrive at these numbers.

While BMY may outperform JNJ 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.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Amedisys vs. Amerco.

With higher inflation and the Fed raising interest rates, JNJ has seen a 10% fall this year. Can it drop more? See how low Johnson & Johnson stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
JNJ Return -3% -10% 38%
BMY Return 2% -5% 17%
S&P 500 Return -1% 8% 85%
Trefis Multi-Strategy Portfolio -1% 8% 239%

[1] Month-to-date and year-to-date as of 5/16/2023
[2] Cumulative total returns since the end of 2016

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