Down 10% This Year Is Coca-Cola Stock A Better Pick Over AbbVie?

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The Coca-Cola Company

Given its better prospects, we believe Coca-Cola stock  (NYSE: KO) is a better pick than AbbVie stock (NYSE: ABBV). Although these companies are from different sectors, we compare them because they have a similar market capitalization of a little over $250 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. In the sections below, we discuss why we believe KO will offer higher returns than ABBV in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.

KO stock has seen little change, moving slightly from levels of $55 in early January 2021 to around $60 now. On the other hand, ABBV stock has shown strong gains of 40% from levels of $105 in early January 2021 to around $145 now. This compares with an increase of about 20% for the S&P 500 over this roughly three-year period.

Overall, the performance of KO and ABBV with respect to the index has been quite volatile. Returns for KO were 8% in 2021, 7% in 2022, and -8% in 2023 (YTD), while returns for ABBV were 26% in 2021, 19% in 2022, and -11% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that KO and ABBV underperformed the S&P in 2021 and 2023.

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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 Consumer Staples sector, including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) 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.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could KO and ABBV face a similar situation as they did in 2021 and 2023 and underperform the S&P over the next 12 months – or will they see a strong jump? We expect growth in both stocks in the next three years, but KO will likely fare better between the two.

1. AbbVie’s Revenue Growth Is Better

  • AbbVie’s revenue growth has been better, with a 21.2% average annual growth rate in the last three years, compared to 5.6% for Coca-Cola.
  • For Coca-Cola, both at-home and away-from-home channels have grown, primarily driven by solid pricing trends.
  • North America and Latin America segments saw strong 19% y-o-y sales growth in 2022, led by both volume growth and better price realization.
  • Of late, the company is seeing more traction in the away-from-home business than at-home beverages.
  • AbbVie’s revenue growth has been buoyed by its Allergan acquisition in 2020.
  • AbbVie is best known for its blockbuster drug – Humira – used to treat rheumatoid arthritis and Crohn’s disease, among others. Humira garnered $21.2 billion in 2022 sales, reflecting a 3% y-o-y growth. However, Humira now faces biosimilar competition, and its sales are expected to fall meaningfully in the coming years.
  • For perspective, Humira’s sales fell 31% to $9.4 billion for the nine-month period ending September 2023. The company expects the drug’s sales to fall 35% this year.
  • 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 $6.6 billion for the nine-month period ending September 2023, reflecting a solid 51% y-o-y growth.
  • Looking at the last twelve months, Coca-Cola’s 6.3% top-line growth fares better than -4.6% for AbbVie, with a fall in Humira sales weighing on its top line.
  • Our Coca-Cola Revenue Comparison and AbbVie Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Coca-Cola is expected to see mid-single-digit average growth in the next three years, while AbbVie may see little growth over this period amid falling Humira sales. That said, AbbVie’s recent acquisitions, including ImmunoGen, will help it drive long-term growth. AbbVie last week announced its plans to acquire ImmunoGen for $10 billion in an all-cash deal, giving the company a potentially blockbuster oncology drug Elahere. [1]

2. AbbVie Is More Profitable

  • Coca-Cola’s reported operating margin slid from 29.9% in 2019 to 28.8% in 2022, while AbbVie’s operating margin declined from 39.0% to 31.2% over this period.
  • Looking at the last twelve-month period, AbbVie’s operating margin of 31.0% fares better than 28.4% for Coca-Cola.
  • Our Coca-Cola Operating Income Comparison and AbbVie Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Coca-Cola fares better with its 16% debt as a percentage of equity lower than 24% for AbbVie and its 13% cash as a percentage of assets higher than 10% for the latter, implying that Coca-Cola has a better debt position and more cash cushion.

3. The Net of It All

  • We see that AbbVie has seen better revenue growth and is more profitable. On the other hand, Coca-Cola has a better financial position.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Coca-Cola will offer better returns in the next three years over AbbVie.
  • If we compare the current valuation multiples to the historical averages, KO fares slightly better. Coca-Cola’s stock trades at 5.6x sales compared to its last five-year average of 6.8x, and AbbVie stock trades at 4.5x revenues vs. the last five-year average of 5.3x.
  • Our Coca-Cola (KO) Valuation Ratios Comparison and AbbVie (ABBV) Valuation Ratios Comparison have more details.

While KO may outperform ABBV in the next three years, it is helpful to see how Coca-Cola’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 KO Return 0% -8% 41%
 ABBV Return 1% -11% 130%
 S&P 500 Return 0% 19% 104%
 Trefis Reinforced Value Portfolio 2% 31% 571%

[1] Month-to-date and year-to-date as of 12/5/2023
[2] Cumulative total returns since the end of 2016

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Notes:
  1. AbbVie’s Press Release, Nov 30, 2023 []