Should You Buy The Botox Maker Over Johnson & Johnson Stock?

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We believe that AbbVie stock (NYSE: ABBV) is currently a better pick than its industry peer, Johnson & Johnson stock (NYSE: JNJ), given its better growth prospects. Although AbbVie is trading at 4.8x trailing revenues compared to 4.2x for J&J, this gap in valuation looks justified, given the former’s superior revenue growth and profitability, as discussed in the sections below.

If we look at stock returns, AbbVie, with -4% returns in the last twelve months, has fared better than the -13% return for J&J stock and -12% returns for the broader S&P 500 index. There is more to the comparison, and in the sections below, we discuss why we believe ABBV is a better pick over JNJ. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Johnson & Johnson vs. AbbVieWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. AbbVie’s Revenue Growth Is Better

  • AbbVie’s revenue growth of 3.3% over the last twelve months is slightly higher than 1.2% for J&J.
  • Even if we look at a longer time frame, AbbVie fares better, with its sales rising at an average annual growth rate of 21% to $58 billion in 2022, compared to $33 billion in 2019, while J&J’s saw its revenue rise at an average annual rate of just 5% to $95 billion in 2022, compared to $82 billion in 2019.
  • 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%. However, the growth slowed to 1% for both segments 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.
  • J&J’s pharmaceuticals business will likely benefit from market share gains for its cancer drug – Darzalex – and immunology drugs, Stelara 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.
  • 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 garnered a large $21.2 billion in 2022 sales, reflecting a 3% y-o-y growth. Now, Humira’s biosimilar has already hit the European markets, weighing on the company’s international sales (down 22% y-o-y in 2022). The biosimilars are expected to enter the U.S. this year, likely resulting in a significant drop in Humira sales over the coming years.
  • That said, AbbVie is prepared to combat this biosimilar impact with its Allergan acquisition in 2020, giving it access to 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 $13.0 billion in 2022, reflecting about 40% y-o-y growth.
  • Still, Humira’s decline in sales will outweigh the rise in sales of other drugs in the near term. While AbbVie’s sales are expected to fall in 2023, in one of its recent SEC filings, the company stated that it will absorb the loss of exclusivity for Humira in the U.S. and return to strong sales growth in 2025.
  • Our Johnson & Johnson Revenue and AbbVie Revenue dashboards provide more insight into the companies’ sales.
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2. AbbVie Is More Profitable, But J&J Has A Better Financial Position

  • AbbVie’s operating margin of 31.2% over the last twelve-month period is better than 24.9% for J&J.
  • This compares with 39.0% and 24.5% figures in 2019, before the pandemic, respectively.
  • AbbVie’s free cash flow margin of 43% is also better than 22% for J&J.
  • Our Johnson & Johnson Operating Income Comparison and AbbVie Operating Income Comparison dashboards have more details.
  • Looking at financial risk, J&J fares better. Not only is its 10% debt as a percentage of equity is lower than 23% for AbbVie, its 13% cash as a percentage of assets is higher than 7% 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 AbbVie has demonstrated better revenue growth and is more profitable. On the other hand, J&J has a better financial position and is trading at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe AbbVie is currently a better pick.
  • Our forecast indicates an expected return of 26% for AbbVie over the next three years vs. an 11% expected return for J&J, implying that investors will likely be better off picking ABBV over JNJ, based on Trefis Machine Learning analysis – Johnson & Johnson vs. AbbVie – which also provides more details on how we arrive at these numbers.

While ABBV 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 13% fall in the last twelve months. 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 Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
JNJ Return -1% -14% 32%
ABBV Return 0% -5% 146%
S&P 500 Return -1% 2% 75%
Trefis Multi-Strategy Portfolio -4% 3% 224%

[1] Month-to-date and year-to-date as of 3/20/2023
[2] Cumulative total returns since the end of 2016

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