Here’s Why Humira Maker Is A Better Bet Compared To Johnson & Johnson Stock

JNJ: Johnson & Johnson logo
Johnson & Johnson

We think AbbVie stock (NYSE: ABBV) is currently a better pick than its industry peer Johnson & Johnson stock (NYSE: JNJ), given its better growth prospects. Both the companies are comparable in terms of valuation, with AbbVie trading at 4.6x trailing revenues and J&J trading at 4.7x. A similar valuation for both the companies does not make sense, in our view, given that AbbVie has demonstrated better revenue growth and it is more profitable, as we discuss in the sections below. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Johnson & Johnson vs. AbbVie: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. AbbVie’s Revenue Growth Is Better

  • Both companies managed to see sales growth over the last twelve months. Still, AbbVie has witnessed comparatively faster revenue growth of 23% vs. 14% for J&J.
  • Looking at a longer time frame, AbbVie’s’ sales have jumped from $28.2 billion in 2017 to $56.2 billion in 2021, while J&J’s revenues have risen from $76.5 billion to $93.8 billion over the same period.
  • Note that AbbVie’s revenue growth has been buoyed by its Allergan acquisition in 2020.
  • A rebound in demand post-pandemic induced lockdowns has led to the recent rise in revenue for both the companies .
  • AbbVie is best known for its blockbuster drug – Humira – used to treat rheumatoid arthritis and Crohn’s disease, among others. Humira garnered a whopping $20.7 billion in 2021 sales, reflecting a 4% y-o-y growth. Now, Humira’s biosimilar has already hit the European markets, weighing on the company’s international sales. The biosimilars are expected to enter the U.S. next year, resulting in a significant drop in Humira sales over the coming years.
  • That said, Humira is prepared to combat this biosimilar impact with its Allergan acquisition in 2020, giving it access to a Botox, a multi-billion dollar product. Furthermore, its relatively new drugs – Skyrizi and Rinvoq – used to treat plaque psoriasis and rheumatoid arthritis are gaining market share. For perspective, these three products garnered $9.3 billion in 2021, reflecting a 94% y-o-y growth.
  • Looking at J&J, its medical devices business faced headwinds in 2020 due to the pandemic’s impact; it has seen a rebound over the recent quarters. The company’s pharmaceuticals business is seeing strong growth led by market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya.
  • Our Johnson & Johnson Revenue and AbbVie Revenue dashboards provide more details on the companies’ revenues.
  • Looking forward, AbbVie’s revenue is expected to grow faster compared to J&J. The table below summarizes our revenue expectation for AbbVie and J&J over the next three years and points to a CAGR of 9.7% for AbbVie, compared to a CAGR of 4.2% for J&J.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies 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 forecast recovery to pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate 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. AbbVie Has Shown Better Profitability Over The Recent Years, But It Comes With Higher Risk

  • AbbVie’s operating margin of 21% over the last twelve-month period is lower than 25% for J&J.
  • Looking at the recent margin growth, J&J is better, with the last twelve months vs. the previous three-year margin change at 1%, compared to -7% change for AbbVie.
  • However, AbbVie’s average operating margin of around 32% in the previous three years is superior to about 24% for J&J.
  • AbbVie’s free cash flow margin of 41% is also higher than 25% for J&J.
  • Our Johnson & Johnson Operating Income and AbbVie Operating Income dashboards provide more details on the companies’ operating income and operating margins.
  • Looking at financial risk, J&J trumps ABBV. Its 8% debt as a percentage of equity is much lower than 31% for AbbVie. Similarly, J&J’s 17% cash as a percentage of assets is slightly higher than 8% for AbbVie, implying that J&J has better debt and cash position.

3. The Net of It All

  • We see that the revenue growth has been better for AbbVie over recent years. Over the last three years, its average operating profit margins have been better than J&J. However, J&J’s margins are better for the previous twelve-month period, and it offers lower financial risk.
  • Looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe AbbVie is currently the better choice of the two.
  • The table below summarizes our revenue and return expectation for J&J and AbbVie over the next three years and points to an expected return of 29% for ABBV stock over this period vs. 12% expected returns for JNJ stock, implying that investors are better off buying ABBV over J&J, based on our dashboard – Johnson & Johnson vs. AbbVie – which also provides more details on how we arrive at these numbers.

While ABBV stock may outperform JNJ, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Xylem vs. Merck.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Feb 2022
MTD [1]
YTD [1]
Total [2]
JNJ Return -4% -4% 43%
ABBV Return 8% 9% 136%
S&P 500 Return -3% -8% 95%
Trefis MS Portfolio Return -1% -10% 251%

[1] Month-to-date and year-to-date as of 2/28/2022
[2] Cumulative total returns since the end of 2016

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